The surge of new apartment deliveries during the past two years has pushed the multifamily sector into a period of rent stagnation and cap rate volatility, with the effects most visible in oversupplied Sun Belt and Mountain West markets.

Appraisers must be aware of these and other trends outlined here when assessing properties.

New supply deliveries have driven vacancy upward across much of the region; however, rental rate growth has remained largely flat rather than declining, indicating owners are prioritizing occupancy over rate reductions.

National rent growth slowed to near zero in 2025 – just 0.1% year-over-year for asking rents — as operators prioritized occupancy over pricing power in the face of record-high vacancy rates around 8.5% to 8.6%.

Concessions, rather than reduced asking rents, have been the primary tool ownership has used to stabilize occupancy, retain in-place tenancy, and achieve new leasing velocity.

With so many new Class A units competing for tenants, concessions have become widespread and effective rents grew only 0.6% nationally, further illustrating how abundant supply has suppressed pricing power.

Net absorption has remained positive across most Southeast markets, though absorption pacing has been inconsistent from quarter to quarter.

Absorption rates for newly completed units fell to a record low of 45% in mid-2025, indicating that demand has not kept pace with deliveries and reinforcing pressure on rents in newly built communities, according to the Federal Reserve Bank of Richmond.
Markets with limited new construction — particularly coastal metros — have avoided the worst of this trend, posting stronger rent growth due to constrained supply and healthier demand fundamentals.

Appraisal Methodology Implications

Asking rent and effective rent must be analyzed separately, with concessions quantified explicitly, rather than relying on a single reported rental rate.

Lease-up analysis and absorption projections have become a more prominent component of the assignment, as newly delivered properties are taking longer to reach stabilization.

Current closed-transaction data has proven more reliable than published investor surveys for cap rate support, as survey data can lag current market conditions by one or more quarters.

Class bifurcation (A vs. B/C performance) has widened, requiring closer attention to comparable selection, as a market-level average rent or cap rate may not reflect the specific class and vintage of the subject.

A blended analysis of contract and market rent is often more appropriate than reliance on either figure alone when valuing partially stabilized assets.

Operating Expenses Increasing Materially

Insurance and real estate tax expenses have increased materially on newly constructed product, compressing net operating income independent of revenue performance.

New construction is particularly exposed to this trend, as reassessment upon completion or sale frequently coincides with the lease-up period, when revenue is at its lowest point in the asset’s operating history.
Expense growth has, in many cases, outpaced revenue growth, meaning flat rental rates have not translated to flat NOI.

Cap Rates’ Uneven Response

Cap rates have responded to these conditions unevenly.

Nationally, cap rates widened moderately through 2025 as income softened and investors demanded higher yields amid weaker rent growth and elevated vacancy rates.

The sector is not expected to return to pre-2022 levels given ongoing operational headwinds and conservative underwriting standards.
In some markets, rents and cap rates have moved in the same direction – a break from typical pricing behavior. In cities such as Atlanta, Chicago, and New York, rents began recovering in 2025 even as cap rates continued to rise, indicating that investors remain cautious and are still pricing in risk despite improving income trends.

Conversely, in oversupplied Sun Belt metros such as Dallas, Houston, and Miami, both rents and cap rates fell or stayed flat, suggesting that buyers are accepting lower yields even as income weakens — a sign of strong capital inflows and competitive bidding despite soft fundamentals.

By late 2025, some stabilization began to emerge. CRE Daily reports that cap rates appear to have reached a turning point, with improved liquidity and buyer competition preventing further expansion. Prime assets in strong locations even saw slight compression, trading at sub-5% cap rates as investors anticipated rent growth returning to the 2.25% to 2.5% range over the next 12 to 18 months. This outlook hinges on the expectation that new supply will decline meaningfully in 2026, allowing vacancy to fall and rents to gradually recover.

Taken together, the new supply wave has created a bifurcated market: oversupplied regions face rent stagnation, elevated vacancy, and cap-rate expansion, while supply constrained coastal markets maintain stronger rent growth and more stable pricing. As construction activity slows and absorption improves, the sector is positioned for gradual rent recovery and potential cap-rate compression beginning in late 2026 — but the timing and magnitude will vary sharply by region and asset class.

Shaun C. Payne MAI is a Senior Managing Director for Valbridge Property Advisors, based in Charleston, S.C.

The information contained in this publication is for informational and educational purposes only. It is not financial, legal, or other professional advice, and you may not rely on it for any purpose. To secure professional advice for your particular situation, you must engage one or more appropriate professional advisors to advise you about your situation.