Intelligent Investment
Pre-Stabilized Properties Limit Overall Multifamily Rent Growth
June 25, 2025 3 Minute Read
Despite multifamily vacancy rates largely stabilizing nationwide in 2024, year-over-year rent growth still lags pre-pandemic levels. This puzzling result can be partly explained by the unusually large amount of new supply that has been completed but not yet leased.
To better reflect long-term income potential, vacancy rates reported by data providers (including CBRE) typically do not include newly built properties that are in the initial lease-up phase until they become stabilized with at least 85% occupancy. During periods of much more moderate levels of construction deliveries, these pre-stabilized new properties usually would not appreciably change the reported vacancy rate. However, on the heels of a record amount of new supply in many markets, this deluge of pre-stabilized properties and the elevated number of unoccupied units put downward pressure on rent growth averages.
Figure 1: Vacancy Rates With & Without Pre-Stabilized Properties, 2015-2019 vs. Q1 2025
From 2015 to 2019, had these pre-stabilized new properties been included in markets statistics, the total vacancy rate would have only been 60 basis points higher than reported. This coincided with average annual rent growth of 2.7% over the five-year period. Fast forward to Q1 2025 and the glut of pre-stabilized properties that resulted from the recent construction boom would boost total vacancy by 1.5 percentage points and has limited year-over-year rent growth to only 0.9%.
Regional differences in new supply and the number of unoccupied pre-stabilized units drive much of the variation in rent growth between markets. The South Central, Mountain and Southwest regions all currently have above-average reported vacancy rates and have the highest total vacancy when including unoccupied pre-stabilized units in buildings that are in the initial lease-up phase. As a result, these regions are all seeing negative rent growth. The Midwest, Northeast and Pacific regions all have positive rent growth, reflecting more typical construction-delivery and lease-up trends.
Figure 2: Absorption With & Without Pre-Stabilized Properties
Recent record levels of net absorption would be even stronger when including the leasing activity in pre-stabilized assets. Overall net absorption last year was reported as 545,000 units. Had the leasing activity in pre-stabilized buildings been included in the reported market statistics, absorption would have risen to 655,000 units. As fewer deliveries occur and more new properties reach at least 85% occupancy, the spread between the reported vacancy rate (stabilized properties) and the total vacancy rate when including pre-stabilized assets will tighten over the next two years.
Figure 3: Oakland Total Vacancy Rate With & Without Pre-Stabilized Properties
Although this situation is unusual, there is at least one recent example of high pre-stabilized vacancy that indicates the likely future path for these markets. Like the rest of the Bay Area, Oakland had some of the highest levels of multifamily construction before 2020. However, the COVID pandemic led to significant net outmigration from expensive coastal markets. In Oakland, this left a large portion of properties that had just completed construction. The total vacancy rate when including pre-stabilized properties was nearly double the average for stabilized assets. As a result, Oakland recorded negative 7.7% year-over-year rent growth in Q1 2021. As these pre-stabilized units were absorbed and the total vacancy rate receded to a more typical level, rent growth turned positive and was 0.3% in Q1 2025 even though the vacancy rate for stabilized properties was essentially the same (about 4.8%) in both periods.
Figure 4: Recovery Timeline for High-Supply Markets With Negative Rent Growth
Like Oakland in 2021, some markets today are taking longer to achieve positive rent growth because of the effect of new properties that are in the initial lease-up phase. Considering this, we expect rent growth to turn positive in most high-supply markets by the end of this year.
