Rising Multifamily Vacancy Expected to Peak in Early 2027

Rising Multifamily Vacancy Expected to Peak in Early 2027
U.S. supply decline still outpaces moderating demand

U.S. multifamily vacancy rates are now expected to rise more than previously forecast, peaking in early 2027 as rent growth weakens.

Although new construction is slowing, supply is still projected to exceed demand in the near term. Annual absorption—defined as the net change in occupied units—is expected to lag behind deliveries as leasing activity returns to more typical, pre-pandemic levels. Following a surge in multifamily construction during and after the pandemic, the market continues to work through a backlog of newly delivered units.

Vacancy is projected to reach 8.8% by the end of this year before easing slightly to 8.4% by the end of 2027. Stabilized vacancy rates are expected to rise gradually through mid-2027 as excess inventory from the past two years is absorbed.

Forecasts from CoStar maintain near-term rent growth expectations, reflecting steady but moderate leasing demand. However, projections for the second half of the year have been revised downward due to softer employment growth, which is expected to slow demand and extend the absorption timeline into 2027.

Annual rent growth is now expected to increase from 0.2% in the first quarter to 0.5% in the second quarter of 2026—an upward revision of 10 basis points from the prior forecast. Still, growth later in the year has been trimmed, with fourth-quarter projections lowered from 0.6% to 0.5%.

The near-term outlook reflects stable first-quarter performance, while weaker expectations for the second half of 2026 stem from slower job growth and the large volume of excess supply delivered in 2024 and 2025.

Absorption is projected to fall to roughly 70,000 units per quarter, below the five-year pre-pandemic average. Meanwhile, completions are expected to drop 28% in 2026 to 382,000 units, followed by an additional 24% decline in 2027. This pullback in new supply is expected to allow demand to outpace deliveries by mid-2027.

Downside Risks Persist

Risks to the outlook remain skewed to the downside. Rising energy costs have already reduced consumer purchasing power, while economists have lowered employment growth forecasts amid shifting U.S. tariff policies, slower labor force expansion, and productivity gains that reduce hiring needs.

Over the longer term, these factors are expected to continue weighing on rental demand. While fiscal expansion between mid-2026 and early 2027 could provide a temporary economic boost, lower immigration levels are projected to constrain labor force and employment growth through 2031.

Population growth and household formation are also expected to remain subdued, further limiting demand.

As a result, multifamily vacancy rates are forecast to decline only gradually over the next five years, while rent growth is expected to average 1.5% annually—below historical norms.