After more than a year of steady increases, U.S. apartment rent growth has finally shown signs of cooling. According to a new CoStar report, the second quarter of 2025 marked the first slowdown in rent growth since early 2024, offering a glimpse of relief for renters but raising important questions for landlords, developers, and investors. Read the full report here.
Rent Growth at a Glance
For the quarter ending June 30, 2025:
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Year-over-year growth: Asking rents rose 0.9%, a step down from the 1.2% increase recorded in Q1.
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Quarter-over-quarter growth: Rents increased 0.6%, nearly half the pace of the 1.1% growth seen at the start of the year.
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Vacancy rate: National vacancy remained steady at 8.2% for the third straight quarter, signaling that supply and demand are still working through an adjustment phase.
This deceleration suggests that the record-setting pace of the last two years is losing momentum, in large part due to shifting market dynamics.
What’s Driving the Slowdown
1. A Wave of New Supply
Developers have been delivering a surge of new apartments to the market, especially in major metros. With more units available, renters have greater choice, weakening landlords’ ability to push rents higher. In some cases, entire buildings are entering lease-up at once, flooding local markets with options.
2. Incentives and Concessions
To compete, many owners especially of new luxury developments are offering incentives such as one or two months of free rent, flexible lease terms, or upgraded amenities. These concessions effectively hold back rent growth, even as asking rents appear stable on paper.
3. Segment Differences: Luxury vs. Affordable
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Luxury apartments continue to show stronger growth, averaging 1.8% yearly rent increases over the past two years. But this slice of the market represents only about 2.5% of total U.S. supply, making its impact limited.
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Affordable and mid-tier rentals are where the slowdown is most pronounced. Tenants in these segments are particularly price-sensitive, and landlords are facing more pushback against steep increases.
Regional Standouts
Rent growth hasn’t slowed everywhere. A few metros are still outpacing the national average:
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San Francisco: Despite long being one of the most expensive markets, rents are up 5.1% year-over-year, leading all U.S. markets.
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Chicago and the Midwest: The region continues to see healthy rent momentum, driven by steady demand and moderate new construction.
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Boston and the Northeast: Tight supply and strong employment sectors have helped keep rent growth above the national average.
These contrasts highlight how local economic conditions, job growth, and construction pipelines continue to shape outcomes market by market.
What It Means for Renters
For tenants, this cooling trend could offer breathing room:
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Less aggressive increases: Slower growth means fewer sharp hikes at renewal time.
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More choices: With vacancy holding steady and supply still coming online, renters have more leverage to shop around.
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Potential deals in luxury markets: Incentives at new properties could create opportunities for renters to access upgraded living at reduced effective costs.
However, affordability challenges remain. Even with growth slowing, national rents are still far higher than they were pre-pandemic, and in many cities they continue to outpace wage growth.
Implications for Landlords and Developers
While renters may benefit, property owners face new realities:
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Competition is stiffening as new supply comes online, particularly for owners of older or less amenity-rich properties.
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Renovations and upgrades may become necessary to retain tenants in buildings competing against new developments offering free rent and modern finishes.
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Luxury development still holds promise, but given its small market share, developers may need to temper expectations and plan for slower absorption rates.
For landlords, this period may be less about aggressive rent growth and more about maintaining occupancy and offering value that keeps tenants from moving to competing buildings.
The Bigger Picture
This slowdown comes at a time when the multifamily sector is balancing strong long-term demand with short-term headwinds:
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Economic factors like inflation and interest rates continue to shape renter affordability and investor appetite.
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Demographic trends including urban migration and household formation among younger renters support long-term demand.
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Policy and zoning decisions could either ease or tighten supply pipelines in coming years.
Taken together, these dynamics suggest the U.S. rental market is moving into a period of moderation. Instead of the rapid increases of 2021–2023, the next phase may be defined by slower, steadier rent growth, higher competition, and more balanced conditions between renters and landlords.
Outlook
If construction pipelines remain robust and vacancy rates stay elevated, it’s likely that rent growth will remain modest through the rest of 2025. Renters can expect more negotiating power, while landlords and investors may need to adapt strategies for a competitive environment.
For now, the story is less about a rent crash and more about a market finding its balance after years of rapid escalation.
Source: “U.S. apartment rent growth eases for first time since early 2024,” CoStar News, July 7, 2025. Read the full article here.