Quarterly Market Update: Why New Rental Units Are Outperforming the Broader Market

Key Takeaways:

• While the broader residential rental market sees flat rent growth and near 10-year high vacancy rates, newly completed units are rebounding with higher absorption rates and record-breaking rents, driven by a sharp pullback in new supply.

• This divergence exemplifies the economic “stock-versus-flow” dynamic: Developers can adjust new supply, whereas existing housing stock is static and slow to respond to shifts in demand.

• With rent growth flat and vacancies rising, operators must shift from property management to performance management, leveraging data and technology to improve resident experience and net operating income (NOI).

Contrasting Market Signals

The residential rental market across the United States is sending mixed signals. Data from the U.S. Census Bureau shows that monthly asking rents have remained flat (near $1,500 each quarter) since 2023, marking the slowest three-year growth rate since 2013. Even though rent growth has stalled, property managers continue to face challenges attracting renters. The rental vacancy rate is approaching a 10-year high (Figure 1), and the median duration of vacancy has widened to levels unseen since the COVID-19 pandemic, when social distancing and sanitation protocols prolonged the leasing process (Figure 2).

In contrast, the market for newly constructed rental units is resurgent. The latest findings from the Census Bureau’s Survey of Market Absorption indicate that after four years of post-pandemic declines, the absorption rate — units occupied within three months of completion — has stabilized over the last four quarters (Figure 3), signaling smoother renter placement for these properties. Reinforcing this momentum, monthly asking rents for new multifamily units surged 6.5% over the past year, surpassing $2,000 for the first time on record (Figure 4).

A pronounced split is developing between the new construction and existing rental sectors. Managers of newly delivered units are asking $503 more in monthly rent than operators of existing inventory, the largest premium since 2022.

New Supply Can Adjust; Existing Stock Can’t

This difference between existing and new rental units is not due to suddenly intensifying preferences for brand new apartments. Instead, owners of new units are benefiting from a dynamic that is not available to any other property owner: the ability to adjust supply in response to current market conditions. The number of new multifamily units hitting the market is down nearly 50% compared to the third quarter of 2024 (Figure 5); property owners who are supplying brand new units enjoy improving market outcomes because they face much less competition from other suppliers.

The divergence between a softening broader rental landscape and the recovery in the market for newly available units highlights a fundamental distinction in economics: stock variables versus flow variables. 

• Stock variables: Existing rental units form a stock — an accumulated, static measure at a fixed moment that adapts gradually over time. When market demand softens, existing inventory cannot quickly downsize, leading to increased overall vacancy rates and stagnant rent growth across the broader market.

• Flow variables: Quarterly additions of newly completed properties represent a flow — the rate of incoming supply over a set period. Unlike operators of existing inventory, developers can scale back this incoming flow during market slowdowns, limiting new units to protect and advance rental rates.

This stock-versus-flow relationship is illustrated in Figure 6. The silos depict the stock of grain, representing an accumulated total recorded at a single moment; the harvesters and tractors control the flow, a dynamic rate over time. As storage silos reach capacity, farmers can deliberately slow their harvesting rate to safeguard the value of the unharvested crop. Although this distinction extends to various economic sectors, such as labor markets, mortgage financing, and the federal budget, the practical implication for property managers is clear: Broad market averages often conceal crucial nuances, so strategic decisions must factor in where a portfolio falls within this economic spectrum.

Shifting to Performance Management in a Softer Market

For rental operators, today’s softer market raises the stakes on performance. When strong rent growth and tight vacancies can no longer reliably lift returns, every incremental dollar of NOI has to come from the fundamentals: pricing effectively, converting more prospects, retaining residents, controlling costs, and improving operational efficiency. Operators can’t control the broader market, and unlike developers, they can’t limit the supply of units they already manage, but they can control how effectively those units perform. That makes the shift from property management to performance management even more important. Technology that connects data, insights, and action can help operators find those incremental gains and turn better execution into stronger NOI.

In a market where rent growth is flat and vacancies are taking longer to fill, property managers need to be more precise about pricing and performance at the property level. AppFolio Leasing Signals can help operators navigate that complexity by providing transparent pricing suggestions for vacancies based on their specific strategy, goals, and portfolio data. At the same time, Realm-XAssistant can surface performance insights and reports, helping teams identify where leasing conditions are changing and make more informed decisions about pricing, marketing, and operations.

With vacancy rates rising, converting every qualified prospect also becomes increasingly important. Realm-X Leasing Performer helps property managers respond to leads quickly and consistently across channels, while Leasing CRM organizes and prioritizes leasing activity so teams can focus attention on the prospects most likely to convert. Together, these capabilities can help operators reduce friction from lead to lease and compete more effectively for a limited pool of renters, particularly when vacancy durations are rising and simply increasing asking rents may not be an option.

Finally, softer market conditions put an even greater premium on retaining existing residents and minimizing downtime between leases. FolioSpacehelps operators create a more seamless resident experience across move-in, payments, services, and the broader resident journey, while Realm-X Resident Messenger Performer and Realm-X Maintenance Performer can take on resident communications and maintenance intake and triage. By strengthening the resident experience and making operations such as maintenance and unit turns more efficient, property managers can focus not only on attracting new renters but also on protecting occupancy and NOI within the inventory they already have.