Multi-Family Market Report

In the third quarter of 2025, the multifamily market in San Jose is witnessing a notable increase in absorption, as renters take advantage of the rise in new apartment availability over the past year. The net delivery of 4,300 units in 2024 marked the highest annual total since 2016. Although the influx of new units has continued into 2025, the pace is expected to moderate in the coming quarters.

While the supply of new units outpaced absorption over the last year, leading to an uptick in the vacancy rate as unoccupied units were delivered, demand has rapidly caught up, resulting in a decrease in vacancies. Local property managers report strong interest among renters for apartments in new communities.

Over the past two decades, San Jose's multifamily market has experienced remarkable growth, driven by the success of Silicon Valley's tech economy, which has resulted in significant increases in employment and income, as well as strong housing demand. Accordingly, there is intense competition for both for-sale and rental housing in the desirable suburbs of Silicon Valley, resulting in some of the highest housing costs in the nation.

In 2021 and the first half of 2022, robust demand for apartments spurred developers to increase construction efforts, leading in turn to the surge in completions of the past two years.

However, the construction pipeline has quickly emptied. Construction starts plummeted in 2023 and remained low in 2024, primarily because of challenging economic conditions that have made securing construction financing both costly and difficult.

Annual net absorption increased to 2,300 units in 2024 and reached 4,800 by the current quarter.

As new deliveries outstripped absorption in 2024, the market's vacancy rate increased. However, that pattern has now reversed, and the vacancy rate is now 4.8%, reflecting a 10 basis point decline since the start of the year. The vacancy rate is expected to decline further in the coming months.

The average apartment rent in San Jose, $3,230/month, is the third highest in the U.S., trailing only New York and San Francisco, with rents in the most sought-after neighborhoods reaching some of the highest levels nationwide.

The for-sale housing market continues to be expensive, with rising house prices and mortgage rates close to 7%. This situation has resulted in the largest affordability gap in the nation between buying and renting, which suggests that most new households are likely to rent instead of purchase, thereby bolstering demand for apartments.

Continuing strong demand in the coming quarters should help keep vacancy rates low and foster positive rent growth.