Western U.S. Multifamily Market: Resilient Demand, Rising Vacancies, and Investor Opportunities

From Seattle to Los Angeles, multifamily stays strong as affordability pressures persist and investors return.

The multifamily sector is regaining momentum. After a turbulent 2023 of rate hikes, steep sales declines, and slowing rent growth, Western U.S. markets are stabilizing. Transactions are rising, fundamentals remain sound, and multifamily continues to prove its resilience.

The question is no longer whether multifamily will endure, but how it will adapt to affordability constraints, interest rate shifts, and regional demand. Key drivers include the rent vs. mortgage gap, rebounding investment, and divergent rent and vacancy trends.

Rent vs. Mortgage Gap Drives Demand

High mortgage rates—peaking near 7.8% in late 2023 and still in the low 6% range—keep homeownership out of reach for many.

• Mortgage vs. rent: Nationally, mortgage payments now average 35% higher than multifamily rents.
• Impact: Many renters, particularly younger households, are remaining in apartments longer.

Even with further Fed cuts, owning will remain far costlier than renting, sustaining multifamily demand despite modest rent growth.

Transaction Activity Rebounds

Western U.S. apartment sales, down 60% in 2023, have rebounded strongly. Volume hit $15.2 billion over the past year, with per-unit pricing climbing back to $272,000—near 2022’s peak.

Buyers are adjusting to higher borrowing costs, sellers to new pricing realities. Investor interest is returning, especially for well-located assets in supply-constrained metros.

Rent Growth Normalizes, Vacancies Diverge

After a post-pandemic surge of 21.4% between 2021 and 2022, rent growth has slowed to just 1.9% over the past two years.

Vacancy rates tell a nuanced story. Regionally, vacancy has risen from 5.4% in 2019 to 6.4% today, with expectations of 6.7% by year-end. But market-level differences are significant. Vacancies have tightened since 2019 in Coastal markets such as Orange County, San Diego, and Silicon Valley, underscoring persistent demand in high-cost, supply-constrained metros.

The regional forecast suggests fundamentals will remain steady into 2026, but the performance of individual markets will hinge on the balance of supply deliveries and demand absorption.

Market Spotlights

Seattle Multifamily: Resilient Amid Pipeline Pressures

Seattle’s apartment market is in transition as construction slows and demand continues to build. According to Kidder Mathews VP Jay Bennett, “Seattle’s multifamily pipeline is active, but financing and construction hurdles are slowing deliveries.” With the COVID-era boom in development fueled by cheap debt in the rearview mirror, fewer starts and permits are expected to create a shortage of units in 2026–2028, setting the stage for “outsized rent growth as immigration into the area continues due to strong engineering, life science, and tech employers.”

At the same time, the investment climate is showing renewed strength. Kidder Mathews EVP Dylan Simon notes, “Puget Sound’s multifamily market is stabilizing as investors adjust to sustained high interest rates and modest rent growth over the last several years. In the last 12 months, sales volume increased 100% year-over-year—from $1B this same time last year to $2.1B in the trailing 12 months. This shift signals both investor interest in the Pacific Northwest and a closing of the bid-ask spread. We expect a robust 2026.”

Bennett adds that both the Eastside and outer submarkets like Lynnwood and Kent are emerging as the most resilient. The Eastside—Bellevue, Redmond, and Kirkland—has seen a net influx of tech jobs, as companies shift across the bridge from Seattle. “Even as the tech employment market softens and we see layoffs, we expect the Eastside to outperform,” Bennett notes that pro-business policies and corporate relocations continue to fuel rising rents and home values in those markets.

Outer submarkets are also positioned to thrive thanks to their affordability and existing stock of Class B and C properties. “Developers are unable to make Class B and C projects pencil in today’s environment,” says Bennett, which insulates these areas from future oversupply. Combined with lower rent levels, these submarkets are well placed to capture demand if economic conditions push renters toward more affordable options.

Portland Multifamily: Turning a Corner

After several sluggish years, Portland’s multifamily market “finally appears to be turning a corner,” notes Kidder Mathews EVP Jordan Carter. With 2025 on track for the fewest deliveries since 2011 and construction activity slowing sharply, vacancy rates are expected to fall from roughly 7% to around 5% in the next two years—fueling rent growth in the 2–3% range after years of stagnation. Suburban markets, where supply remains constrained, are likely to see the strongest rent gains and continue drawing investor interest.

Financing remains the market’s biggest challenge. “If the market can get interest rates back down into the low 5% range, expect a wave of activity to follow from owners and investors who have been mostly sitting on the sidelines.” Carter adds, the Federal Reserve’s recent interest rate cut is expected to serve as a catalyst.

Portland is attempting to spark new supply with a temporary System Development Charge (SDC) waiver—saving developers $20,000 to $40,000 per unit and potentially yielding 2,600 new units—alongside permit streamlining. Yet, as Carter points out, it will take more than fee relief to re-energize the pipeline: “The cost of construction financing remains the primary deterrent for developers.”

San Francisco Bay Area Multifamily: Tight Vacancies Despite Affordability Hurdles

The Bay Area remains one of the nation’s least affordable markets, yet vacancy rates have tightened since 2019 due to limited new construction and the region’s enduring economic pull.

After years of decline, the Bay Area experienced moderate population growth in 2024 and 2025 and the apartment market is regaining momentum as vacancy rates tighten and rent growth accelerates across major submarkets. Kidder Mathews EVP John Leyvas notes, “After several years of uneven performance, the Bay Area is once again showing its resilience. We’re seeing vacancies trend below the national average and rents climb at a healthy pace.”

San Francisco leads with a 4.6% vacancy rate in Q3—the lowest in a decade and well below the U.S. average of 8.2%. Average rents climbed 6.2% year-over-year to $3,320, the fastest growth nationwide, fueled by income gains and strong demand for Class A units in Mission Bay and SoMa. At this pace, San Francisco could soon reclaim the nation’s highest rents.

San Jose shows similar strength, with vacancy at 4.9% and rents averaging $3,220, the nation’s third highest. Rents grew 3.8% year-over-year, supported by the region’s tech-driven economy. “San Jose’s long-term fundamentals remain exceptionally strong,” Leyvas notes. “The tech sector continues to anchor demand, and employment growth is set to outperform national averages, keeping vacancy below 5% and supporting sustained rent increases.” Forecasts project vacancy will hold near 4.7% through 2029, with rent growth averaging nearly 4% annually as the tech sector anchors long-term demand.

The East Bay is stabilizing with a 6.2% vacancy rate and average rents of $2,456. While Oakland’s new construction has elevated vacancy and weighed on rents, stronger submarkets are outperforming. Forecasts for 2025–2029 call for 2.3–2.7% (conservative) & 2.6-4.6% (moderate) for San Leandro & Hayward annual rent growth in San Leandro, Hayward, and Alameda, and 2.1–2.8% (conservative) & 2.1%-4.9% (moderate) annually in Fremont, Dublin, Pleasanton, and Livermore. These areas benefit from higher household incomes, strong community amenities, and access to job hubs. Meanwhile, wide rent variation across the metro—from premium markets like Emeryville and Berkeley to affordable areas such as Pittsburg/Antioch—helps sustain demand across price points. With steady job growth, rising net absorption, and a slowing construction pipeline, East Bay vacancy is expected to remain below 6% while rent growth stabilizes near 2–3% by mid-2026.

“The San Francisco Bay Area remains one of the nation’s most competitive rental markets,” Leyvas notes. Strong demand fundamentals position the Bay Area as one of the West’s most stable multifamily markets.

Los Angeles Multifamily: Undersupply Supports Demand

The Los Angeles apartment market continues to wrestle with an entrenched housing undersupply, made worse by today’s cost environment. With its sheer population base and enduring housing shortage, Los Angeles remains one of the most compelling long-term multifamily markets, despite near-term headwinds.

Kidder Mathews SVP Robin Ossenbeck says that high interest rates, construction costs, and entitlement hurdles have stalled many projects, pushing affordable housing further out of reach. The “missing middle”—teachers, doctors, and other professionals—are increasingly priced out. With starter homes now approaching $1.1 million, many buyers are renting longer, slowing household formation. Meanwhile, existing multifamily assets are trading below replacement cost in high-demand infill areas, making them attractive alternatives to new development.

Despite fluctuating sales, rental demand remains strong. Ossenbeck expects would-be first-time buyers to keep renting, while higher-income tenants gravitate to new, high-quality projects. She sees opportunities in infill and value-add plays, especially in Echo Park, East Hollywood, Los Feliz, and prime San Fernando Valley communities.

Debt Market Perspective

Debt availability, rates, and leverage have been steadily improving. Rates have compressed into the mid-5% range, and lenders are offering stretch senior and mezzanine debt to bridge equity gaps.

Kidder Mathews EVP Brad Kraus explains, “While cap rates remain tight, there is ample debt across the capital stack to support acquisitions and development for projects that pencil.” Well-capitalized buyers are best positioned to take advantage of value-add opportunities as the market looks to clear distressed assets without fanfare.

Conclusion: Multifamily is Resilient and Selective

Western U.S. multifamily markets offer resilience but require selectivity. Renter demand remains anchored by affordability gaps, demographics, and limited construction pipelines, though performance varies by metro.

• Coastal markets (Los Angeles, San Diego, Silicon Valley) provide defensive stability and long-term upside.
• High-growth inland markets (Phoenix, Las Vegas) offer opportunities for patient investors despite near-term vacancy pressures.
• Seattle and the Bay Area balance strong economic drivers with supply and affordability challenges.

Multifamily has entered a phase focused on steady, sustainable fundamentals rather than runaway rent growth. Anchored by persistent renter demand and returning capital, the sector remains a cornerstone of Western U.S. real estate.

Data Source: CoStar, Yardi Matrix, KM Research