As we move into the final quarter of 2025, we’re pleased to share the Third Quarter 2025 Market Update Letter. In this update, we review several key topics shaping the multifamily market:

• Third Quarter Apartment Market Update: Demand Cools, Fundamentals Hold Strong
• America Isn’t Moving: The Long-Term Shift Driving Multifamily Stability
• When Good Intentions Raise Rents: The Unintended Costs of Tenant Protections

Third Quarter Apartment Market Update: Demand Cools, Fundamentals Hold Strong

The third quarter apartment market showed a mix of positives and challenges. Demand for apartments has cooled from last year’s record highs—something that was widely expected—as new construction slows and the market adjusts from an unsustainably strong run. In multifamily terms, this moderation is reflected in “absorption,” which measures the net number of newly signed leases for vacant units over a given period. Importantly, absorption excludes lease renewals and instead tracks how much new demand enters the market. Because most new leases occur when recently completed buildings open and begin leasing, absorption tends to move in tandem with the pace of new project completions. When fewer developments are finished and made available for rent, measured absorption slows—even if underlying renter demand remains healthy—since there are simply fewer vacant units available to lease.

Overall occupancy—the share of apartments currently rented—improved slightly as newly built properties filled up, though established properties saw a modest dip. This reflects heavy competition among landlords, as renters now have more options than at any time in the past fifty years due to a historic wave of new supply. Rents continued to soften as owners offered more concessions to attract residents. While small rent declines are typical in September, this year’s 0.6% monthly drop was slightly larger than usual. Still, renters remain in strong financial shape: renewal rates reached another high, showing most apartment residents are choosing to stay put, and renewal rents rose about 3.7% year-over-year. New renters’ rent-to-income ratios fell to a six-year low of 21.9%, signaling that affordability remains solid for mid- and upper-income renters. Many renters are also signing longer leases—both a sign of confidence and a strategy by landlords to maintain stable occupancy.

Overall, the apartment market remains fundamentally sound despite short-term pressures. The primary headwind for investors continues to be the elevated level of new supply, which is keeping rent growth subdued. However, with construction starts now at their lowest level in over a decade, this supply imbalance should gradually resolve. As the market normalizes, conditions appear set for a steadier and potentially stronger leasing environment heading into the spring 2026 leasing season.

America Isn’t Moving: The Long-Term Shift Driving Multifamily Stability

For decades, mobility defined the American economy. In the 1950s, about 20% of Americans moved each year, often chasing jobs and opportunities across the country. But according to Census Bureau data, only 9.8% of Americans moved in the most recent year tracked — the lowest rate since records began in 1947.

The chart below shows that multifamily turnover rates — the share of renters who move out rather than renew their leases — have been steadily declining since 2016 across the industry, including among publicly reporting multifamily REITs. Since turnover is essentially the inverse of renewal rates, higher renewals mean lower turnover.

Most economic and business analysts are generally too quick to credit only the stalled-out homebuyer market for every positive renewal rate trend in the apartment market. If you see the rental housing world only through the lens of a homeowner, you’re missing the bigger picture.

With multifamily turnover at record lows, countless takes link it directly to high mortgage rates and fewer move-outs to home purchases. But that argument falls apart under closer inspection:

• Turnover has been declining for a decade: Apartment renter turnover has steadily trended down since the mid-2010s — long before mortgage rates spiked. In fact, turnover was falling even when borrowing costs were low and home sales were booming.
• Every major apartment REIT reports the lower turnover: These firms, which skew toward Class A/B properties serving more affluent renters, all show lower turnover. These renters are better positioned to buy homes, yet they’re renewing at higher rates.
• It’s always been expensive to move: “It’s expensive and a hassle to move” isn’t new. That’s always been true. The difference is, even when today’s renters have options in the market (multifamily vacancy is above normal in most U.S. metros), they’re still choosing to stay. Intuitively, more options should mean more churn — but that hasn’t happened.

So, what explains this long-running shift? A few key drivers stand out:

• Professionalized Property Management: Over the past decade, property management has become more tech-enabled, data-driven, and customer-focused. From online leasing to faster maintenance response times to amenity-rich communities, the resident experience has improved dramatically. Satisfied renters renew.
• Demographic Shifts: Americans are delaying marriage and childbearing — life events that traditionally pushed people into homeownership. More people are renting longer by choice, not just necessity.
• Economic Geography: For many, moving no longer promises higher wages or cheaper living. The urban wage advantage for less-educated workers has evaporated, while high rents in gateway cities discourage relocation.

Notwithstanding the longer-term structural trends shaping renter behavior, there is also a clear short-term effect from the sharp rise in mortgage rates and home prices. According to a September 2025 CBRE report, an additional 1.8 million U.S. renter households have been priced out of homeownership, as the average monthly cost of owning a home ($4,643) now exceeds the average rent ($2,228) by more than 100%. With just 12.7% of renters able to afford a median-priced home — and a typical 20% down payment equating to roughly four years of rent — the financial barriers to buying remain steep. This widening affordability gap is keeping more households in the rental market and reinforcing near-term apartment demand. CBRE expects multifamily occupancy rates to remain above historical averages for years to come, underscoring the sector’s resilience amid ongoing housing market constraints.

A stickier renter base is a clear win for multifamily property owners and investors. Longer stays reduce expensive turnover costs like marketing, cleaning, and vacancy loss. Just as importantly, they “close the back door” — fewer units cycle back into supply. With less availability on the market, landlords gain pricing power and can push rents higher, even in periods of elevated vacancy.

When Good Intentions Raise Rents: The Unintended Costs of Tenant Protections

As multifamily investors, we closely track how regulation impacts both property operations and long-term rent growth. A new first-of-its-kind study—“Behind the High Cost of Rent,” authored by Dr. Ken Rosen (UC Berkeley), Dr. Doug Shoemaker (Harvard), and the MetroSight research team—provides hard data confirming what we have long observed in practice: well-intentioned “tenant protection” laws are backfiring on the very renters they are meant to help. Commissioned by the National Multifamily Housing Council (NMHC), the study draws on ACS data across 307 metros and CoStar data from 391 metros, making it one of the most comprehensive analyses of its kind. The research isolates three main categories of tenant protection laws:

• Eviction Mitigation Rules
  • These include “just cause” eviction requirements (e.g., in California and New Jersey, landlords must prove a legally defined reason, such as nonpayment or owner move-in, before removing a tenant) and “right-to-counsel” provisions (e.g., New York City and San Francisco guarantee free legal representation to apartment residents in eviction court). While designed to safeguard housing stability, these laws lengthen eviction timelines, increase legal expenses, and heighten vacancy-related losses and unpaid rent. According to the study, they raise rents by 6.5% on average—with the lowest-income renters experiencing a 7.4% increase, compared to 4.1% for higher-income households.
• Source of Income (SOI) Laws
  • These require property owners and managers to treat government housing vouchers and other non-wage benefits as valid income when screening applicants. For example, Washington D.C. and Massachusetts prohibit landlords from declining applicants because they pay rent with Section 8 vouchers or disability payments. While the goal is to prevent voucher discrimination, in practice these laws add administrative complexity, slow down leasing (as owners wait on government approvals and inspections), and increase compliance burdens. The study finds SOI laws drive rents up 5.2% on average, with a disproportionate effect on the lowest-income renters (+5.7%).
• Screening Restrictions
  • • These laws limit the use of traditional risk indicators when evaluating applicants. For example, Cook County, Illinois restricts the use of criminal background checks in rental decisions, while Seattle has banned landlords from considering prior eviction records. The intent is to expand access for vulnerable households, but these restrictions reduce an owner’s ability to mitigate foreseeable risk. Higher delinquency, turnover, and collection losses are the result, which get priced back into rents. The study shows these rules increase rents by 1.4% (ACS data) to 3.4% (CoStar data). The study also highlights the counterpoint: states that have adopted preemption laws—which prevent municipalities from layering on additional regulations—have seen reduced operating costs, fewer vacancy losses, and better capital expenditure planning, all of which support long-term affordability.

The study finds that lower-income renters are disproportionately impacted by these regulations because they already spend a much higher share of their income on rent and have less ability to absorb even modest increases. When operating costs rise from longer eviction timelines, compliance with voucher programs, or higher delinquency risk due to screening limits, owners must spread those costs across their units. In practice, they fall most heavily on the affordable end of the market, where margins are tighter and risk is concentrated. As a result, the same percentage rent increase—say 5%—represents a far greater financial burden for a household earning less than $50,000 than for one earning more than $100,000, making lower-income renters both more exposed to and less able to withstand the unintended cost of these laws.

For multifamily investors, the implications are clear: “Behind the High Cost of Rent” demonstrates that tenant protection laws are not only a political issue but a quantifiable driver of rent inflation and NOI pressure. While much of the policy conversation has focused on the rising costs of building new housing, this research underscores the equally important role of the costs of operating existing stock. Ultimately, these regulations shift expenses onto renters themselves—particularly the lowest-income households—and jurisdictions with more balanced frameworks will outperform in both affordability and investment performance over the long term.

About Providence Real Estate

Since 1985, Providence and its affiliates have actively operated as owner-operators of multifamily residential communities. Its principals have acquired over 65,000 apartment units, worth over $7.5 billion. Providence comprises an experienced team of professionals dedicated to searching for, identifying, acquiring, renovating, and operating multifamily properties in select U.S. markets. As a fully integrated real estate organization, Providence includes divisions for Property, Asset, and Construction Management; Acquisitions; Accounting; Information Technology; Human Resources; and Business Development. To learn more please visit https://www.provre.com.

DISCLAIMER

The information contained in this letter is provided solely for informational and discussion purposes. It is not intended as an offer to sell, nor a solicitation of an offer to buy, any security. This document may not be relied upon in connection with the purchase or sale of any security. Any such offer or solicitation will be made exclusively through a confidential Private Placement Memorandum (PPM), subscription documents, and governing documents. These offering materials must be reviewed thoroughly before making any investment decision, as all information herein is qualified in its entirety by those documents.

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