Navigating the 2025 Rental Landscape: February Update

The multifamily rental market is entering a pivotal transition period, with key indicators suggesting both challenges and opportunities ahead. Drawing from Apartment List's latest February Monthly Rental Insights Webinar, led by Senior Economist Chris Salviati, we explore the current state of the market and what it means for multifamily professionals navigating this dynamic landscape.

In this blog, we’ll discuss:

• The Current State of the Rental Market: Key Indicators from January 2025
• Geographic Divergence: The Sunbelt Correction & Midwest Affordability
• Changing Renter Dynamics: A More Deliberate Approach
• Supply Wave Comedown: Past Its Peak but Still Impactful
• Looking Ahead: Early 2025 Outlook

The Current State of the Rental Market: Key Indicators from January 2025

The rental market continues to exhibit soft conditions as we begin 2025, with January showing a 0.2% month-over-month decline in rents. January is typically the seasonal low point for rents. As Chris noted, "We are still seeing prices dipping...though we're starting to swing out of that softest period of rent growth."

Key indicators paint a picture of a market that remains soft, but with early signs of turning the corner.

Year-over-Year Rent Growth

• The national median rent is currently down 0.5% from this time last year
• Marked improvement from 2024's consistent -1% to -0.8% declines
• Trending toward potential positive territory later in 2025

National Median Rent

• Currently: $1,370
• Down from August 2022 peak of $1,450
• Still significantly higher than pre-2021 levels

Vacancy Rate

• The national vacancy index reached an unprecedented 6.9% in January 2025, the highest level since we began tracking this metric in 2017.
• This elevated rate reflects both the surge in new supply and evolving renter behavior.

Seasonal Patterns & Recovery Signs

The market is displaying typical seasonal behaviors that suggest prices will begin trending up again shortly. As Chris explained, "Usually around the holidays, November, December, that's when the fewest people are moving. That's when we tend to see the biggest rent declines. And then into the new year, demand starts to pick back up and we gradually turn the corner back into positive rent growth."

Current indicators point to:

• Expected seasonal softness in winter months.
• Growing signs of demand recovery.
• Potential return to positive month-over-month growth within the next few months.
• Gradual market stabilization as we progress through 2025.

Geographic Divergence: The Sunbelt Correction & Midwest Affordability

Perhaps the most striking aspect of today's rental market is the stark geographic variation in performance. Rental markets across the Sunbelt are experiencing some of the sharpest corrections:

• Austin leads the decline with a 7% year-over-year drop
• Denver follows with a 5% decrease in rents
• Raleigh has seen a 4% reduction

Meanwhile, a fascinating shift is occurring in the Midwest. "The Midwest now is really the one region of the country that maintains a little bit of that housing affordability," Salviati observed. This relative affordability advantage has translated into stronger performance, with Cleveland showing 5% rent growth year-over-year and Kansas City following at 4%.

Changing Renter Dynamics: A More Deliberate Approach

The data reveals significant shifts in renter behavior that operators need to understand and adapt to in their marketing and leasing strategies. These changes signal a fundamental shift in how renters are approaching their housing decisions in 2025.

Extended Decision-Making Timelines

"We're in an environment right now where renters just have a lot of options," noted Salviati. This abundance of choice is manifesting in several key metrics that indicate a more methodical approach to apartment hunting.

Search Urgency at Historic Lows

• 59% of renters are now searching with low urgency – a new peak.
• Seasonal patterns typically show more low-urgency searches in winter, but current levels exceed normal seasonal variation.

Extended Lease-Up Periods

• Average list-to-lease time has reached 37 days.
• Represents the longest average time since tracking began in 2019.
• Indicates properties are sitting vacant longer while renters evaluate options.

Shifting Budget Expectations:

• Rental budgets showing decline from late 2024 peaks.
• Two key factors driving this trend:

1. Broader inflation impacts squeezing non-housing budgets.
2. Renter awareness of market softness and increased availability of concessions.

As Salviati explained, "The demand is out there, but renters are waiting for that perfect match right now." This suggests operators may need to adjust their expectations for lease-up timelines and potentially enhance their value propositions to capture increasingly selective renters.

Evolving Unit Preferences

The data reveals fascinating shifts in unit type demand, pointing to evolving renter priorities and possibly broader demographic trends.

Unit Size Preferences:

• Steady increase in demand for smaller studio and 1-bedroom apartments.
• Smaller units accounted for more than one-half of searches in late-2024.
• Marks a significant shift from early pandemic patterns and reflects higher prices per square foot that renters face in their search.

Lease Term Evolution:

• Short-term lease demand (6 months or less) has declined to 11%.
• Down from a peak of 14% in 2024.
• Represents significant shift from pandemic-era flexibility demands.
• Likely indicates stabilizing remote work landscape.

This evolution in preferences appears tied to broader workplace trends. "I think we're in a phase right now with remote work where two things are kind of true," Salviati observed. "There's way more folks still that have remote flexibility than had it five years ago, but there are a lot fewer folks that have it now than had that flexibility say three years ago."

Supple Wave Comedown: Past Its Peak, But Still Impactful

2024 marked a historic year for multifamily construction, with over 600,000 new units completed – a 35% year-over-year increase and the highest level since 1986. However, important shifts are occurring:

• Permitting activity has fallen 29% from its 2021 peak.
• The construction pipeline has contracted from 1 million to 750,000 units.
• Q3 2024 appears to have marked the peak of the construction boom.

As Salviati explained, "We're expecting to see that 2025 is still going to be a year where we're going to have a lot of new supply coming online...But compared to last year, it's definitely going to come down."

Looking Ahead: Early 2025 Outlook

The rental market appears to be approaching an inflection point. While current conditions remain soft, several factors suggest a potential shift ahead:

• Annual rent growth, while still negative, shows signs of improvement.
• The supply pipeline is moderating.
• Geographic opportunities are emerging in previously overlooked markets.

For multifamily operators, this environment requires a nuanced approach:

1. Recognize that renters are taking more time to make decisions and adjust marketing strategies accordingly.
2. Consider the impact of geographic variation when evaluating portfolio performance and expansion opportunities.
3. Prepare for a potential market rebalancing as the supply wave moderates.

Apartment List: Your Partner in Market Intelligence

As the rental market continues to evolve, staying informed with timely, accurate data is crucial for making strategic decisions. Apartment List’s insights help multifamily professionals navigate these dynamic conditions with confidence.

The key to success will be adaptability. From the cresting supply wave to the evolution of AI, staying informed and nimble will be crucial. Apartment List's AList-Nurture Leasing AI can help property teams optimize their leasing operations and resident experience for whatever comes next.

Ready to get ahead? Contact our team today to learn how Apartment List can help your properties thrive in 2025 and beyond.