Renters are increasingly choosing to stay put rather than venture into the unknown, where elevated home prices and broader economic volatility await.

Apartments are staying full longer as high mortgage rates and limited inventory keep renters in place.

Historically, about half of apartment renters choose not to renew their leases. In the first quarter of 2025, that number has dropped to between 30% and 35% in the portfolios of major multifamily landlords, according to Piper Sandler Managing Director of Research Alex Goldfarb.

Large multifamily REITs have reported some of the lowest turnover rates in their companies’ history in recent calls with analysts, like Equity Residential, which reported a 7.9% turnover rate in the first quarter. 

“We’ve seen price growth still put a lot of burden financially on families and individuals across the country,” National Apartment Association Vice President of Research George Ratiu said. “With volatility and uncertainty, I think a lot of folks renting might choose to take what I would say is the certainty of rent over making a long-term commitment.”

Major REITs like Camden Property Trust reported a 31% annualized net turnover rate in Q1, one of the lowest in its history. Essex Property Trust said its turnover landed at 35%, below the company’s long-term average.

Marcie Williams, chief strategy officer of The Bainbridge Cos., which develops, acquires and manages multifamily properties nationwide, is seeing roughly two-thirds of tenants stay put at many of its communities.

“That [retention rate] is extremely high,” Williams said. “I’ve been in this business over 30 years, and that is definitely not typical overall.”

Since President Donald Trump’s “Liberation Day” tariff announcement at the beginning April, price expectations and trade policies have seesawed, prompting fears of a trade war and heightening economic uncertainty. 

Consumer confidence plunged to a 13-year low in April, prompting many commercial real estate professionals to prepare for a recession. But that hasn’t impacted apartment owners, and some see them as a clear winner in an environment with costs spiking. 

“There are a few stories of residents expressing concern due to job loss, but nothing at the moment that is impacting any of our stats, results or projections for the next 90 days in the market,” Equity Residential Chief Operating Officer Michael Manelis said on his company’s first-quarter earnings call. 

Manelis said even in D.C. and Northern Virginia, where federal government job losses are having an outsized economic impact, Equity’s complexes are more than 97% occupied.

But multifamily turnover has been shrinking for the past two years, driven by rising home prices, high interest rates and a shift in renter preferences toward more livable and amenity-rich spaces — a change that began during the pandemic, Goldfarb said.

Less than a third of renters are looking to buy a home within the next five years, according to a survey conducted by Gallup. The cost of homeownership, including the down payment, was cited as the biggest barrier for renters trying to break into the housing market.

“It’s really just the uncertainty with the economy and still the high barriers to entry, with higher interest rates and higher down payments, that has allowed our residents to be able to enjoy the service that we provide and the apartment home that they currently live in,” Williams said.

For landlords, that stability is a win. Lower turnover reduces operating and maintenance costs — typically ranging from $750 to $1,800 per unit — as well as marketing expenses and vacancy loss, since each unoccupied day results in lost revenue, she said.

“There really is nothing negative that comes from having lower turnover,” Williams said.

The bulk of move-outs and lease expirations occur in the spring and summer, Ratiu said, so lower turnover rates at the beginning or end of the year are more common. But turnover is expected to stay low during peak move-out season, even with new units continuing to come to the market, Goldfarb said.

After eight consecutive quarters of record apartment deliveries, completions have fallen from 153,000 units at the end of 2024 to 116,100 units in the first quarter, according to RealPage.

“This year is the second and final year of this outsized supply wave that we’ve seen, primarily in the Sun Belt,” Goldfarb said. “But last year, we had a big supply [increase], and yet turnover declined. So I don’t see any reason why turnover should increase as the second wave of supply delivers.”

With fewer move-outs, owners of the new apartments that have come online are fighting to get in on the action and competing more aggressively for tenants.

That is driving up concessions on new leases, sometimes as high as two months of free rent and $1K gift cards, especially in Sun Belt cities like Jacksonville and Charlotte, Williams said.

“When those properties are 0% occupied, competing with an apartment community that’s 95% occupied, they have to have those concessions to keep up the velocity and the velocity you know you want to make,” Williams said.

But deliveries are expected to fall 14% in 2025, according to Multi-Housing News, tipping the balance of power back toward landlords. With fewer new options coming online and renters growing hesitant to move out, prices are expected to start rising.

“The landlord goes, OK, how much do we think we can raise rent before we raise too much that the person just says, ‘The heck with it, I’m out?’” Goldfarb said. “And I think most people would agree that the mental cost of moving exceeds the actual dollar amount.”

Retail cap rates have increased across all sectors, with the dollar store and grocery sectors seeing rises of up to 23 and 19 basis points, respectively, B+E said in its latest net lease cap rate report. However, other sectors have experienced only minimal cap rate adjustments since the third quarter of 2024, with convenience stores remaining unchanged and QSR cap rates rising by just one bp.  

Since the end of August, there has been an increase in supply across all retail asset classes, the report stated. The casual dining, banking and convenience store sectors have experienced the largest supply increases, with rises of 21%, 20%, and 17%, respectively.

In contrast, the auto parts and pharmacy sectors saw the smallest growth in supply, with changes of 6% and 7%, respectively. Newly available listings make up 34% of the properties currently on the market. 

The industrial market has experienced a 28% increase in the number of available properties, with the distribution sector seeing a 27% rise. Major industrial players, such as FedEx, currently have 15 properties on the market, with an average cap rate of 6.55% and an average of 6 years remaining on the lease term. Among industrial property types, manufacturing facilities have seen the largest increase in cap rates, which have gone up 16 bps to 7.51% as of Q4. 

Among specialized property types, such as urgent care center and dialysis facilities, cap rates have compressed slightly since the end of Q3, according to B+E.

Cap rates in the single-tenant net lease sector continued to rise in the fourth quarter of 2024 for
the 11th consecutive quarter of increases across all three sectors, The Boulder Group reported. Single-tenant cap rates increased to 6.52% (up two basis points) for retail, 7.78% (up three bps) for office and 7.23% (up eight bps) for industrial.

“Sustained high interest rates and commentary from the Federal Reserve following the December meeting
continues to negatively impact the market,” said Randy Blankstein, president, The Boulder Group. “Overall cap rates rose to 6.76%, representing a three-bp increase from the previous quarter.”

Transaction velocity in 2024 remained significantly below the peak of 2021, yet Q4 experienced an uptick of investor activity. The spread between asking and closed cap rates remained flat or decreased for net lease properties.

“The bid-ask spread compression indicates a gradual alignment between buyer and seller expectations, something that was not experienced in early 2024,” said Boulder Group partner Jimmy Goodman. If transaction velocity continues, the supply backlog of net leased assets will decrease, the report stated.

Cap rates in the net lease sector continued to rise in the third quarter of 2024, albeit slightly, net lease brokerage The Boulder Group reported. The overall rise was three basis points quarter-over-quarter, with the average cap rate coming in at 6.73% in Q3.

All property types saw an uptick in cap rates, according to the Q3 report from The Boulder Group. Office sector net lease properties experienced the largest increase, at eight bps, with industrial up five basis points. Retail edged up three bps in Q3.

The onset of rising cap rates coincided with the Federal Reserve’s series of increases to the federal funds rate. “Additionally, there is a stagnant supply of net lease properties on the market resulting from limited transaction activity from both private and institutional buyers,” said Boulder Group president Randy Blankstein.

Current sellers of net lease properties hope the recent 50-bp cut in the federal funds rate will increase transaction velocity and potentially improve pricing in their favor. However, most market participants remain cautious and don’t expect cap rates to compress near-term unless there are continued rate cuts.

Large-scale loans helped drive significant credit changes in newly delinquent loans, cured loans and modified loans during July, Trepp reported. For example, the office CMBS delinquency rate rose 54 basis points last month to 8.09%, with a single loan–the $670-million securitization on 230 Park Ave. in Midtown Manhattan–representing about one-third of new delinquencies in the sector.

In the multifamily sector, several large loans also became delinquent or reverted to delinquency during July, according to Trepp. One of these was the $221-million MFP portfolio, which became nonperforming last November, returned to performing status in April and then flipped back last month. Multifamily delinquencies rose 27 bps to 2.63% as July ended.

Conversely, the $124.2-million Gansevoort Park Avenue loan backed by a Manhattan lodging property was sent to the special servicer in June for imminent monetary default but then turned back to performing matured balloon in July, taking the loan out of the pool of delinquent CMBS deals. This helped drive a 15-bp decrease in hotel delinquencies to 6.17%. Retail delinquencies also declined in July, dropping by 28 bps to 6.14%.

Cap rates in the single-tenant net lease sector increased for the ninth consecutive quarter within all three major property types, according to The Boulder Group’s 2nd Quarter Net Lease Research Report. Single-tenant cap rates increased to 6.47% (up five basis points) for retail, 7.67% (up seven bps) for office and 7.10% (up eight bps) for industrial.

“Elevated interest rates and limited 1031 exchange and institutional buyer activity is the cause of the consistent upward trend in cap rates,” said Randy Blankstein, president, The Boulder Group. “The lack of transactions when compared to recent years is causing property supply to rise without a path to clear the market inventory.”

With a significant number of properties on the market, most investors now believe the current market strongly favors buyers over sellers in terms of compromising on asset pricing. This applies especially to assets that are more highly commoditized, like dollar stores.

“With limited competition, buyers are targeting assets in either income-tax-free states or areas with strong demographic drivers,” said John Feeney, SVP, The Boulder Group. “Secondary buyer motivations include strong real estate fundamentals with credit tenants.”

In the second half of 2024, the pace of cap rate expansion should slow, according to the report. However, cap rates are still expected to rise, given the increase in the supply of net lease properties.

The Newport Beach-based SRS Real Estate Partners Capital Markets team has sold a total of 33 7-Eleven-occupied properties over the past 18 months, valued at $242 million with an average cap rate of 5.27%.

Additionally, SRS has 24 7-Eleven assets currently in escrow or on the market with a combined value of approximately $160 million. All the assets are single-tenant properties with 12 or more years remaining on the lease term.

“Over the past 12 months or so, we have observed that cap rates for 7-Eleven stores are holding steady despite the higher interest rate environment,” said Patrick Luther, SRS EVP and managing principal. “Additionally, the absorption of 7-Eleven assets outpaces comparable credit tenants such as drug store and coffee brands and we have not seen values erode or cap rates rise as much for this brand. Investors are benefitting from the long-term stability, high traffic locations and strong credit rating of this internationally recognized chain.”

Over the past 18 months, SRS has sold 7-Eleven assets in California, Colorado, Connecticut Florida, Nevada, New York, New Jersey, North Carolina, South Carolina, Oklahoma, Tennessee and Texas. The company has properties on the market in California, Florida, New Jersey, North Carolina, South Carolina, Tennessee and Texas.

Net lease cap rates have risen again in the second quarter of 2024, with average caps increasing by 12 basis points quarter-over-quarter to 6.27%, B+E reported. Also up are the average times on the sale market, which increased by 0.8 months during Q2.

B+E’s Q2 cap rate report found that retail cap rates have risen by an average of 12 bps, with some sectors such as casual dining and dollar stores increasing by 21bps from Q1. However, cap rates for quality tenants such as McDonald’s remain relatively stable. Industrial cap rates increased by an average of 15 bps, with FedEx properties rising 39 bps to an average of 6.87%.

“The rise of the 10-year U.S. Treasury continues to put upward pressure on cap rates as investors face higher borrowing costs,” according to the report. “The [Federal Reserve] continues to cite inflation, better-than-expected economic growth and a tight labor market as factors leaving rates unchanged.”

Cap rates in the single-tenant net lease sector increased for the eighth consecutive quarter within all three major sectors in the first quarter of 2024, the Boulder Group reported. Single-tenant cap rates increased to 6.42% (up seven basis points) for retail, 7.60% (up five bps) for office and 7.02% (up two bps) for industrial.

“Cap rates in the first quarter of 2024 represented the highest levels since 2014 for single-tenant retail properties,” said Randy Blankstein, president, The Boulder Group. “However, cap rates for single-tenant retail and industrial assets remain lower than their 20-year historical average by approximately 40 basis points.”

Added Boulder Group partner Jimmy Goodman, “Elevated interest rates continue to impact transaction volume which is lower than prior years. A lack of 1031 exchange buyer activity is resulting in an increased supply of net lease properties on the market.”

Single-tenant property supply increased by more than 9% over Q4 2023 levels. With limited transactions occurring, properties continue to be added to, and stay on, the market. Despite the headwinds in the market, certain sellers including merchant builders or owners with upcoming loan maturities look to meet market pricing, according to The Boulder Group.

As of year-end 2023, Austin posted a strong occupancy level of approximately 96.8 percent, based on Weitzman’s review of retail market conditions. The percentage, the strongest among Texas’ major retail markets, is based on a market inventory of approximately 52.4 million square feet. 

The market’s years-long trend of limited new construction also contributed to the tight market. And even though deliveries in 2023 resulted in the highest new construction total in seven years, most new space was user-driven by concepts like grocery stores like H-E-B and power anchors like Costco. 

During calendar year 2023, new space deliveries totaled approximately 789,000 square feet in new and expanded projects with 25,000 square feet or more. The 2023 deliveries represent the highest new-space level since the market added 1.1 million square feet in 2016.