U.S. Residential: Apartments Showing Positive Momentum

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U.S. Residential: Apartments Showing Positive Momentum

6/18/2026

Kevin White, CFA

Global Co-Head of Real Estate Research

The U.S. apartment market saw seasonal momentum as demand bounced back during first quarter while new supply continued to slow.^[1] The 32 major metros in our coverage universe absorbed roughly 65,000 units in the first three months of the year, among the highest first quarter numbers over the past decade and 50% above the average.^[1] Despite soft demand in the second half of 2025, absorption of 240,000 units over the past four quarters essentially tracked the previous ten-year average.^[1]

Renters are renewing their existing leases at historically high levels.^[2] Several large public REITs reported their lowest turnover in history, citing retention in the high-50% to low-60% range and describing renewal trends as "very strong" or at "record levels."^[2] We maintain that renewals not only reduce turnover costs and the risk of months of vacancy; they dramatically outpace new leases for rent growth.

Rental Net Absorption and Completions as a % of Inventory and Vacancy Rate (2006 – 2030)

^{Sources: CBRE-EA (history as of 1Q26) & DWS (forecast). As of May 2026.

Note: F = forecast. Aggregate of DWS’s investable universe of markets. Past performance is not indicative of future results. No assurance can be given that any forecast or target will be achieved.}

Residual supply continues to limit rent growth, essentially flat year-over-year on a national basis.^[1] However, construction is pulling back as market conditions remain challenging for ground-up projects.^[3] Completions in the first quarter slid 35% year-over-year to 46,000 units, their lowest level since early 2021. Meanwhile, the construction pipeline dropped nearly 50% from its peak in the first quarter of 2023.^[4] For the remainder of 2026, we expect elevated financing costs, tighter capital conditions and construction expense inflation to continue to discourage development, reinforcing the slowdown. Given typical 18-month development timelines, most of the current pipeline will not reach completion until mid-2027 or later, signaling a prolonged period of subdued delivery volumes ahead.^[5]

For now, supply rather than demand is driving relative performance across markets, in our view. Those that avoided aggressive construction (e.g., San Francisco, Chicago, and New York) are seeing pricing power, while oversupplied metros (typically in the Sun Belt) are in a period of digestion.^[6] However, as the development pipeline thins, we believe that southern growth markets will join and then lead the next cycle.

Additional Resources

Real Estate Minute | May 19, 2026

5/19/2026

Beyond the Economy: Structural Drivers for Real Estate

Real Estate Minute | April 22, 2026

4/22/2026

Senate Advances 21st Century ROAD to Housing Act

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