What We Got Right - and Wrong - About the Apartment Market in 2025

Calendar 2025 was a year of surprises for the U.S. apartment market. As we start the new year, it’s worth taking a moment to revisit some of the predictions we made for the apartment market last year, to see where our forecasts aligned with reality – and where the market threw us curveballs.

Supply Still Rules the Rent Growth Story

Our first prediction wasn’t exactly bold – more of a reminder that Econ 101 still applies. We said rent growth would continue to split between markets with low supply and those with high supply.

That’s exactly what happened. In fact, the relationship between supply and rent growth played out even more clearly than we anticipated. States that delivered inventory faster than the national average almost universally saw rent cuts in 2025. States with slower-than-average inventory growth posted rent gains averaging about 2.1%. Conversely, states with rent declines saw drops nearly proportional to their pace of supply growth.

Supply Trends Also Drove Concessions

Property owners relied heavily on concessions to maintain occupancy, just as predicted, though the patterns varied across markets. Nationally, only a small share of markets saw meaningful increases, while a much larger group experienced notable declines, suggesting stronger than expected demand in many areas. However, among properties that did use concessions, the value of those incentives surged. The average concession reached the equivalent of 36 days of free rent, with some high‑supply markets like Austin, Denver, San Antonio and Jacksonville offering up to three months free to stay competitive as new deliveries flooded the market.

Class A Occupancy Narrowed the Gap in 2025

Although Class A occupancy did not quite surpass Class B and C units as predicted, the overall trend moved in the expected direction, with Class A product meaningfully closing the gap. By 3rd quarter 2025, stabilized Class A properties reached roughly 95% occupancy, a strong outcome given ongoing lease‑ups that naturally pulled the broader average down. This performance highlights the depth of demand in the upper‑tier segment and marks the closest alignment between Class A and B/C occupancy levels seen in more than a decade.

Retention Rates Stayed Elevated

Despite expectations that new supply and widespread concessions would push resident retention lower in 2025, the opposite occurred. In fact, retention climbed to near‑record levels. Strong apartment demand made many renters reluctant to take on the hassle and uncertainty of moving, especially as broader economic sentiment weakened. Historically, retention rises when consumer confidence falls. As consumer sentiment dipped – driven in part by factors like tariffs – renters became more risk‑averse and more likely to stay put, helping property owners maintain exceptionally high renewal rates heading into 2026.

Construction Slowdown Materialized

The prediction that apartment starts would remain low in 2025 proved accurate, though the expectation of a deeper decline was harder to judge. Starts technically fell about 10% year-over-year, but given the small base and pending RealPage revisions, 2024 and 2025 may ultimately look nearly identical. Roughly 250,000 new market‑rate units began construction this year, reinforcing the broader takeaway that starts remain historically subdued. Still, beneath the national totals, a more nuanced picture is emerging: while most major markets continue to sit well below their cycle peaks, a handful have begun to show year‑over‑year increases, even if the compressed 2024 numbers exaggerate the growth rate. The result is a clear split between markets where construction activity is beginning to re‑accelerate and others where it remains firmly stalled.

Affordability Rebounded Strongly in 2025

Affordability improved more than expected in 2025, reaching its healthiest point in nearly a decade as rising household incomes combined with flat rent change to ease pressure on renters. Wage gains, especially among younger, college‑educated households, outpaced inflation for over a year, allowing renters to keep more of what they earned while a tight labor market and low unemployment reinforced that momentum. With rent growth running below 1% year-over-year for nearly 30 months and new supply expanding renter choice, the rent‑to‑income ratio fell across all asset classes. Although wage growth is beginning to cool and 2026 may look different, the alignment of strong incomes, abundant supply and muted rent growth made 2025 a quietly powerful year for renter affordability.