Demand is improving and the construction pipeline is shrinking. Yet rent growth remains muted, concessions are common, and the strongest opportunities increasingly depend on market selection, property basis, and financing.
The midyear message is neither “boom” nor “bust.” For the first time in several years, the national apartment data is beginning to show the outline of a healthier supply-demand balance. New deliveries are falling, renter demand strengthened in the second quarter, and vacancy is beginning to ease in many markets. But the recovery is not broad, uniform, or yet powerful enough to restore strong rent growth everywhere.
Demand improved meaningfully as the spring leasing season progressed. Cushman & Wakefield reported approximately 124,600 units of net absorption in the second quarter, up from a revised 83,500 units in the first quarter and 8% above the same quarter of 2025. First-half absorption reached about 208,000 units, slightly exceeding the 167,700 units delivered during the same period.¹
CBRE’s separate Q1 dataset pointed in the same direction: 78,100 units were absorbed while only 58,100 units were completed, vacancy fell 20 basis points during the quarter, and 63 of the 69 tracked markets posted positive absorption. The exact numbers differ by provider, but both datasets show improving demand relative to new supply.²
The improvement is noteworthy because job growth, immigration and population growth have all moderated. Apartment demand is being supported by household formation, the high cost of homeownership, smaller household sizes, and renters remaining in apartments longer than they might have in a lower-rate environment. That demand is real, but it has not yet translated into broad pricing power.
The strongest fundamental improvement is occurring on the supply side. RealPage estimates that annual apartment deliveries peaked near 588,000 units in late 2024 and declined to approximately 340,200 units in the year ending Q2 2026 - a reduction of roughly 42%. Quarterly deliveries have now declined for six consecutive quarters on an annualized basis.³
Cushman & Wakefield reported about 475,000 units under construction at midyear, equal to 3.5% of existing inventory. That is less than half the 7.9% peak reached in early 2023 and the lowest construction share since 2013. First-half starts totaled roughly 110,000 units, the lowest since 2012.¹
This does not mean every market is immediately clear of excess supply. Recently delivered communities may take another year or more to stabilize, and concessions can remain elevated long after construction slows. Still, the direction is increasingly favorable for existing properties: fewer starts today mean fewer lease-up competitors in 2027 and 2028.
The national rent story depends on the source, but the common conclusion is clear: revenue growth remains subdued. Cushman & Wakefield measured 1.5% year-over-year asking-rent growth in Q2. Yardi Matrix reported only 0.2% annual advertised-rent growth in June, with the national average at $1,763. RealPage measured effective asking rents 0.2% below the prior year. These series use different samples and definitions, but none indicates strong national pricing power.¹ ³ ⁴
Yardi’s seasonal comparison is particularly revealing. Advertised rents rose 0.7% during Q2 and 1.0% in the first half of 2026, well below the pre-pandemic seasonal averages of 1.8% and 2.7%, respectively. Leasing activity is healthy, but owners are still choosing occupancy over aggressive rent increases.⁴
Concessions reinforce that point. RealPage reported that 24.6% of apartments were offering concessions at midyear, with the average concession equal to 7.6%. Occupancy improved to 95.5%, but widespread discounts mean the recovery in effective revenue is lagging the recovery in heads-in-beds.³
The apartment market is becoming more geographically differentiated. Within Cushman & Wakefield’s coverage universe, Q2 vacancy stood at 5.1% in the Northeast, 8.0% in both the Midwest and West, and 11.0% in the South. The South continues to account for the largest share of both apartment demand and construction, but its heavier supply burden is still suppressing rents and elevating vacancy.¹
Coastal technology markets and several supply-constrained Midwest and Northeast metros are showing the strongest pricing. Cushman & Wakefield reported year-over-year asking-rent growth of 13% in San Francisco, 7% in San Jose, 5.6% in Norfolk and 4.8% in the East Bay. At the other end of the spectrum, Sarasota and Austin were still posting rent declines, although both have improved materially from their worst readings.¹
Investors should not interpret strong absorption in a high-supply market as proof that rent growth will immediately follow. Dallas-Fort Worth, Phoenix, Atlanta and Austin were among the leaders in first-half absorption, but those markets also added large amounts of new inventory. The most important local question is not simply “Is demand growing?” It is “Is demand growing faster than the remaining competitive supply?”
THE LOCAL-MARKET TEST: A metro can report strong demand and still produce weak property-level revenue if lease-up competition, concessions, or an unfavorable basis absorb the benefit. Investors should evaluate the true competitive submarket, not rely on a national or metro headline.
Newmark estimated that owning a home cost approximately $1,040 more per month than renting in Q1 2026 - about 2.4 times the long-term average spread. Elevated mortgage rates, high home prices, property taxes, insurance and limited entry-level inventory continue to delay the move from renting to owning.
This affordability gap is one of the strongest supports for apartment demand. It does not guarantee rapid rent growth, because renters are also sensitive to inflation and income growth. But it reduces move-outs to home purchase and expands the period during which many households remain renters. That is particularly valuable while the market absorbs the final stages of the recent construction cycle.⁵
Financing conditions have improved more rapidly than transaction activity. Newmark reported that multifamily debt originations increased 46% year over year in Q1 2026, signaling stronger lender liquidity. CBRE, however, reported Q1 multifamily investment volume of $29.5 billion, down 6% from a year earlier. Stabilized assets can attract debt, but buyers and sellers remain selective and pricing expectations are still adjusting.² ⁵
CBRE’s broader 2026 capital-markets outlook anticipated healthy debt availability, tight lending spreads and modest cap-rate compression for high-quality assets, while emphasizing that returns would be driven primarily by income rather than rapid valuation gains. That remains a useful discipline at midyear: the investment case should work based on current operations and realistic improvements, not on a quick return to the ultra-low-rate pricing of the last cycle.⁶
Apartment fundamentals are moving in the right direction, but “apartments” should not be treated as a single national trade. The supply pipeline is shrinking, demand is resilient and the homeownership affordability gap remains supportive. At the same time, rent growth is weak, concessions remain common and the recovery varies widely by market and submarket.
For 1031 exchange and DST investors, apartment properties may continue to play an important role in a diversified replacement-property strategy. The more important decision is which apartment investment: at what basis, in which submarket, with what remaining supply, what financing, what sponsor assumptions, and what current annualized cash flow.
FGG1031 | First Guardian Group uses the FGG Compass analytical process to compare offerings across market fundamentals, sponsor experience, leverage, current cash flow, potential appreciation and downside risks. A favorable national trend can help, but careful property-level underwriting remains the difference between a strong apartment thesis and a strong apartment investment. For more information, contact us at info@firstguardiangroup.com.
Sources and Research Reviewed
1. Cushman & Wakefield, “Q2 2026 U.S. Multifamily MarketBeat,” July 2026.
2. CBRE, “Q1 2026 U.S. Multifamily Figures,” April 28, 2026.
3. RealPage Market Analytics, “2nd Quarter 2026 Data Update,” July 6, 2026.
4. Yardi Matrix, “Multifamily National Report - June 2026.”
5. Newmark, “1Q26 U.S. Multifamily Capital Markets Conditions & Trends,” May 14, 2026.
6. CBRE, “U.S. Real Estate Market Outlook 2026 - Capital Markets.”
7. JLL, “Global Real Estate Perspective,” May 2026 (capital-markets and living-sector context).
8. National Multifamily Housing Council, “Quarterly Survey of Apartment Conditions,” April 2026.