Fourth Quarter 2025
Inland Empire Multifamily Market Continues to Adjust to New Supply
Vacancies rise and rent growth moderates as development activity pulls back.
Deal sizes compress and cap rates expand, while long-term rental demand remains intact.
MARKET OVERVIEW
In Q4 2025, the Inland Empire’s multifamily housing market showed shifting trends as new supply continued to reshape fundamentals. Vacant units increased 8.5% quarter-over-quarter and 7.7% year-over-year to 14,992 units. Developers delivered 2,044 new units during the quarter, a sharp acceleration from 433 units in Q3 and above the 1,538 units added in Q4 2024. Year-to-date deliveries totaled 5,623 units, a 15.1% increase over the same period in 2024, underscoring an elevated pace of inventory growth. As a result, the vacancy rate rose to 6.2%, up 50 basis points from Q3 and 70 basis points year-over-year.
Average asking rents declined $9 quarter-over-quarter to $2,111 per unit and were $20 lower year-over-year, marking a retreat from Q2 2025’s all-time high. This moderation reflects heightened competition among newly completed properties, even as elevated interest rates and construction costs constrain future development. As of Q4, 3,015 units were under construction, down 36.6% from the prior quarter and 56.0% year-over-year, signaling a pronounced pullback in the development pipeline.
Sales activity presented a contrasting view of the multifamily investment landscape. While transaction volume declined nearly 70% quarter-over-quarter, year-to-date sales reached approximately $1.1 billion, up 9.7% from the same period last year. The average sale price per unit fell 17.8% year-over-year to $200,828, and the total number of units sold edged down 2.3% to 4,435. Meanwhile, average capitalization rates increased 30 basis points year-over-year to 5.8%.
Together, these trends point to a market in transition, where rising vacancies and a sharp construction pullback coincide with tempered rent growth and resilient, though uneven, investment activity.
TRENDS TO WATCH
As the Inland Empire’s multifamily market navigates rising costs and shifting economic conditions, fundamentals are expected to remain resilient. Employment growth, favorable demographic trends, and the persistent challenge of homeownership affordability continue to underpin rental demand, while investment activity shows signs of renewed traction. Although elevated borrowing costs have increased financial risk, demand persists across select asset classes, with growth prospects remaining particularly compelling in the Inland Empire.
In 2025, the market recorded 180 sales of properties with fewer than 100 units, up from 154 transactions in 2024. Over the same period, average deal size declined 8.4% year-over-year to $5,721,976. This contraction reflects a higher volume of smaller transactions and ongoing price recalibration, as elevated borrowing costs push investors toward more modest acquisitions and prompt others to sell rather than refinance. The Federal Reserve’s decision to hold interest rates steady suggests average deal sizes may compress further in the near term.
Demand for affordable housing was underscored by one of Q4’s standout transactions: the sale of Heritage Park Senior Apartments, an 86-unit multifamily property at 2665 Clark Avenue in Norco, California. Western Community Housing, Inc. and Wasatch Group sold the asset to Affordable Housing Access, Inc. for $13.95 million, or approximately $162,210 per unit. The buyer’s mission centers on expanding affordable housing opportunities for low-income, disabled, and elderly residents. Located near major transportation corridors between the 60 and 91 freeways, west of the 15 freeway, the property benefits from regional connectivity that supports its role as a more attainable housing option for residents priced out of Los Angeles and Orange counties.
Another key transaction signaling sustained investor appetite was the sale of a 204-unit multifamily portfolio from a private individual to another private buyer for $41.1 million, or roughly $201,470 per unit. The portfolio includes Mayfield Park (84 units) and Springbrook Park Apartments (120 units), both located within the Inland Empire. Combined in-place net operating income for 2025 totaled $2,036,411, translating to a blended capitalization rate of 4.95%.
Overall, investors are recalibrating strategies to balance higher borrowing costs against sustained rental demand. Looking ahead, the multifamily market is expected to continue adjusting to broader economic conditions and evolving financing dynamics. As mortgage rates and home prices remain elevated, homeownership remains unattainable for many households, reinforcing long-term rental demand. However, slower rent growth may temper pricing expectations as investors operate within a more selective and disciplined market environment.
