Northern and Southern California diverge on rent

Apartment rent growth accelerates in the Bay Area

By Joshua Ohl, Nigel Hughes, Jesse Gundersheim, Catherine Yeh

CoStar Analytics

October 17, 2025 | 2:00 P.M.

After navigating California’s deepest lows in rent performance following the onset of the pandemic, Bay Area multifamily markets in San Jose and San Francisco have reversed course in recent quarters.

Rent growth in the Bay Area has accelerated to lead the state in year-over-year rent gains. The East Bay has not been too far behind.

Most of the major metropolitan areas in California have seen growth weaken following record-high rent growth growth in 2021 and 2022. With almost four years of rent growth — when factoring long-term averages — confined to that 12-month peak, landlords have had more trouble raising rents in line with historical norms in recent quarters.

Let’s have a look at how rents have been performing across California’s major markets in 2025.

San Francisco

San Francisco is finishing 2025 with the highest rent growth in the nation. The combination of a surge in demand and a cyclical low in new construction has pushed the vacancy rate below 4.5%, its lowest level in the past decade, allowing owners to raise rents.

The average market rent in San Francisco is $3,300 per month, 6% above its level a year ago. If the market maintains this rate of growth, it will soon surpass New York, which has the nation’s highest average monthly rent, at $3,350.

Property managers in San Francisco attribute the strong demand to a return to population growth, expansions by growing artificial intelligence companies, the extension of return-to-office mandates, and the success of efforts to mitigate the negative effects of crime and homelessness.

The massive injection of capital into San Francisco’s booming AI sector is undoubtedly the leading demand driver. In the third quarter of 2025, Bay Area AI startups received $30 billion in venture funding, double the amount received in the same period last year and one-third of global venture capital investment.

The neighborhoods where many of these AI companies have established their headquarters have seen some of the highest multifamily rent growth. For instance, rents in Mission Bay, where OpenAI has leased almost 1 million square feet of office space, increased by 12.5% over the past year.

Continued high demand is expected to foster competition among renters, leading to further upward pressure on rent in the months ahead.

San Jose

The San Jose market is rapidly absorbing the new units completed during the recent cyclical high in construction. A surge in development activity has seen around 7,000 units in market-rate buildings completed in the past two years, most of which are in the premium/luxury quality segment, with high levels of tenant amenities and high rents to match.

Demand for apartments in the new complexes has been strong, allowing many to reach stabilization quickly. Despite the influx of supply, the overall market vacancy rate has fallen below 5%, its lowest level of the past decade. Moreover, the vacancy rate in stabilized properties is now below 4%.

The average rent in San Jose is $3,200 per month, the third highest in the nation. The average rent increased by 3.5% over the past year, with rents increasing in all quality segments.

Tight conditions are projected going forward. The pace of multifamily development has sharply dropped, resulting in very low levels of new supply in 2026. With demand set to remain strong, the upward pressure on rent is likely to continue in the quarters ahead.

East Bay

The East Bay’s multifamily market stabilized in 2025, seeing positive rent growth for the first time in three years.

A surge in new development in 2022, mostly in downtown Oakland, pushed supply ahead of demand. Higher vacancy rates led owners of new and existing apartment complexes to lower rents and offer large concessions to boost occupancy.

In 2025, the pace of construction slowed, allowing many newer communities to move towards stabilization. The overall vacancy rate, which was above 7% in 2024, has now fallen close to 6%, and rent growth is now moderately positive, currently 1% year over year.

Average rent in the East Bay, currently just under $2,500 per month, is significantly lower than across the bay in San Francisco and San Jose. This cost advantage has helped boost occupancy in neighborhoods like Downtown Oakland, where units in four- and five-star buildings can be leased for an average $2,800 per month, compared with $4,100 in San Francisco.

Looking ahead, a diminished construction pipeline should see the East Bay move toward lower vacancies and moderately higher rents in 2026.

Sacramento

Sacramento wrapped up an uninspiring third quarter with rent growth turning negative for the first time on an annualized basis in the past decade. Rents fell 0.1% year over year, driven by a quarter-over-quarter drop during the third quarter.

New supply has played a role in stifling rent growth across the Sacramento region. Almost 9,000 market-rate units opened between 2022 and 2024, which has affected pricing power among landlords due to competing lease-ups. Similarly, the development of affordable housing has accelerated in Sacramento, which has applied pressure to vacancy rates in mid-tier and naturally occurring affordable housing.

Some pockets of Sacramento that have been untouched by the recent supply wave have still been able to raise effective rents on lease trade-outs, but those areas are increasingly less common. Instead, concessions are often lowering effective rents, and they have spread to stabilized properties in the form of gift cards, free rent, and look-and-lease specials.

Rent growth is not expected to rebound meaningfully through 2026, and concessions are likely to be widely employed to maintain and increase occupancy levels.

Los Angeles

Los Angeles multifamily rent growth has remained persistently low, with average year-over-year increases staying under 1% from 2023 to the present, including 0.5% at the end of the third quarter. This trend is more evident in four- and five-star properties, which have seen an average annual decrease of 0.3% since 2023.

In contrast, one-, two- and three-star properties performed slightly better, averaging around 1.1% annual growth.

One factor contributing to limited pricing power for landlords has been increased supply; completions in Los Angeles have averaged approximately 9,900 units annually over the past decade, compared to about 3,900 units annually during the previous decade.

However, construction in Los Angeles has cooled and is at its lowest level this decade; the moderation in new deliveries should allow demand to balance out and, in turn, improve rent growth.

Inland Empire

Inland Empire apartment rents have remained relatively steady since mid-2022, with annual rent growth hovering near 1% through 2023 and 2024. However, momentum has slowed in 2025, with trailing-year rent growth dipping to just 0.5% and heading for a slightly weaker increase to finish the year.

Landlords aren’t pushing rents much higher as development completions have increased competition and keep overall vacancy in the market elevated at 6.4%. Supply growth is concentrated among upper-tier four- and five-star properties. Facing an onslaught of new supply, the majority of which offers prospective renters one to two months free in lease-up, these higher-end units post a trailing-year rent decline of 0.5%.

Mid-tier three-star apartments registered a modest 0.9% annual increase, while lower-quality one- and two-star apartments have shown more consistent performance. After lagging during the pandemic, rents in this segment have maintained a stronger pace of growth in recent years, now posting a 1.5% year-over-year gain. Vacancy rates remain lowest among these properties, driven by demand from the region’s blue-collar workforce.

Orange County

A barely positive, 0.3% increase in Orange County rents in 2024 represented the area's weakest gain in 14 years. Rent growth has improved slightly since then, but it is still trending at a pace well below operational expenses, heading for a 1.3% annual increase projected for 2025. That would rank behind San Francisco and San Jose among major California markets. Vacancy in Orange County remains compressed at just 3.7%, trending lowest among all but a few tertiary California markets.

Supply growth remains limited due to a lack of developable land. While rental demand is strong enough to sustain high occupancy, a lack of employment and population expansion is preventing demand from pressuring rents swiftly higher. Landlords have reported a negative impact on occupancy in instances where rents were increased more aggressively.

San Diego

San Diego entered the home stretch of 2025 with rent growth stagnating at 0.3% year over year. Traditionally, landlords have been able to pocket the largest rent gains during the second and third quarters, but not this year. Rent growth was flat quarter over quarter during the second quarter, and rents fell 0.5% during the third. The end of the year figures to be more of the same, and rents are anticipated to slip into the red by January.

Landlords have pivoted toward prioritizing occupancy over rent growth across San Diego in recent quarters, eschewing rent gains in order to fill units. That effort has worked, with vacancy flat through the year after rising unabated for three years.

It has often required concessions. New properties across San Diego have offered up to eight weeks of free rent, something that was largely relegated to Downtown San Diego in the past. Concessions have also increased to improve front-door demand, as well as at renewal for stabilized properties. Concessions for renewals are almost unheard of in San Diego. Operators expect to use them through the spring 2026 leasing season.