A new market reality: Renters gain leverage
The Q4 2025 rental market presents a decisive shift toward renter empowerment. After 26 consecutive months of rent declines in the traditional multifamily sector, coupled with rising inventory and aggressive landlord concessions, renters now hold significant negotiating leverage. This shift creates both challenges and opportunities for prospective coliving operators who must navigate compressed margins while differentiating their value proposition beyond price alone. Although the broader market continues to decline, PadSplit has bucked the trend and is growing occupancy, rents, and demand while others pull back.
Success in this environment demands operational excellence, strategic flexibility, and a clear understanding of how PadSplit’s model is outperforming precisely because the market is down. PadSplit’s community-focused approach enables sustainable growth where traditional landlords are cutting rents and offering concessions.
What we’re seeing in the market:
- Traditional rents have declined for 26 months (studios -2.9%, 1BRs -3.9% YoY), dropping from $1,631 to $1,584
- 22.6 million apartment units (33%+ of apartment listings) are offering incentives (free rent, waived deposits)
- National vacancy rates: 1,582,000 rentals are vacant nationwide (7.0% overall, 9.0% in the South)
- PadSplit rents up 4.23% YoY to $853/month
- Price gap narrowing: PadSplit is now 47% cheaper than studios with utilities included.
- PadSplit metrics: 30.1 days to fill, 86% mature occupancy, 26,448 total units
While the market trends down, PadSplit trends up in rents, occupancy, and operator earnings.
The rental crisis no one’s talking about: 26 months of decline
Traditional rental market crisis
The traditional rental market faces unprecedented challenges. September 2025 marked the 26th consecutive month of rent declines, with rents now 2.1% below the August 2022 peak. This prolonged softness reflects fundamental oversupply across major metros, particularly in the South, where aggressive multifamily development has driven vacancy to 9.0%.
In an era of widespread contraction, PadSplit stands alone: growing when others can’t.
Landlord incentives continue to surge
Concession rates climbed to 30% nationwide in Q2 2025, up from 23% the previous year. Markets in Arizona, Colorado, North Carolina, and Texas show particularly high rates. Over 33% of listings now offer incentives, including one to two months free rent, reduced deposits, waived fees, or move-in bonuses.
These widespread concessions significantly reduce net effective rents—the actual revenue landlords collect.
Not all markets are drowning—here’s the regional breakdown
Housing inventory surged 24.8% YoY with 21 consecutive months of gains. Regional divergence is substantial: the West (+7.5% above pre-pandemic) and South (+6.1% above) have exceeded historical supply levels, while the Midwest (-36.4%) and Northeast (-48.6%) remain below pre-pandemic norms.
Multifamily construction has declined sharply (-38.1% YoY), signaling a developer response to oversupply. The Midwest saw the steepest decline (-55.7%), followed by the South (-33.5%), the Northeast (-33%), and the West (-28.9%). This construction slowdown will eventually rebalance supply-demand dynamics, likely by late 2026 or 2027.
Supply gluts create entry points, and undersupplied markets offer stability
Inventory is crushing landlords in oversaturated markets, but not everywhere, and not for every product type. The West and South are +6-7.5% above pre-pandemic supply levels, driving rent compression and vacancy spikes in traditional multifamily. Meanwhile, the Midwest (-36.4%) and Northeast (-48.6%) remain severely undersupplied, offering more stable conditions for patient operators.
Here’s where PadSplit operators have the edge: While most landlords compete for shrinking pools of $1,600/month renters, PadSplit targets 40-60 million working-class adults earning under $37,500 annually—a demographic experiencing employment growth in healthcare, logistics, and hospitality. Traditional housing is structurally unaffordable for this segment. Coliving isn’t competing with apartments; it’s solving a different problem entirely.
The playbook is clear:
- Oversupplied markets (West/South): Acquire distressed properties at steep discounts. Construction declines (-28.9% to -55.7% YoY) signal rebalancing by 2026-2027. Buy the dip.
- Undersupplied markets (Midwest/Northeast): Capture unmet demand now. Less competition, tighter fundamentals, faster stabilization.
- Everywhere: Target the working-class renter. They’re not going anywhere, and nobody else is building for them at scale.
Not all markets are drowning—here’s the regional breakdown
PadSplit continues to outperform traditional housing
PadSplit’s metrics prove the resilience of its model in a declining market:
Member demographics & target market analysis
PadSplit members represent the working-class demographic most impacted by housing affordability challenges. More than 40–60 million working-class adults in the U.S. face acute housing affordability challenges, yet there are only about 27,000 PadSplit coliving rooms available nationwide.
- Median age: 36 years
- Median income: $27,600 annually (75% below $37,500)
- 48% own a vehicle, 65% without a college degree
This demographic aligns with sectors experiencing continued employment growth (i.e., healthcare, logistics, hospitality). Traditional rentals priced at $1,595-$1,629/month are financially inaccessible to households earning $27,600 annually, creating substantial unmet demand for affordable alternatives.
Migration & national growth markets
Migration patterns strongly favor PadSplit’s geographic footprint. Key growth metros like Atlanta, Tampa, Charlotte, Dallas, and Philadelphia are experiencing robust job growth in healthcare, logistics, and service sectors, creating sustained housing demand from workers earning $25,000-$45,000 annually.
The global coliving market is projected to reach $16.05B by 2030, growing at a 13.5% CAGR.
Your playbook for outperforming a broken rental market
1. A small rate cut beats vacancy
In high-inventory markets, reduce room rates by 5-8% to remain competitive. A 5% rate reduction on a $900/month room equals $540 annually per room. However, every month of vacancy costs $900 plus turnover expenses, and typical rent concessions now add another $900 in lost revenue per year—making strategic rate reductions economically superior to extended vacancies and aggressive discounting.
Target rate adjustments in markets with elevated vacancy (above 7%), high concession rates, days-to-fill exceeding 35-40 days, or slowing demand. Key markets requiring close attention: Charlotte, Los Angeles, Denver, Phoenix, and select Texas metros.
Review performance data weekly: Monitor inquiry volume, booking conversion rates, days-to-first-booking, competitive local pricing, and seasonal patterns versus historical norms.
2. First impressions = faster bookings
Professional photography increases booking rates by 20-40% compared to amateur photos. This $150-$300 investment generates a substantial return through faster bookings. Essential elements: proper lighting, clean, staged rooms, wide-angle shots that maximize perceived space, and highlighting amenities.
Craft compelling descriptions that emphasize all-inclusive pricing, transportation access, proximity to major employers, community features, room dimensions, and amenities. Properties with excellent ratings (4.5+) should prominently feature this.
3. Strategic promotional leverage
Rental pricing dips begin in August and continue through winter. Deploy promotions strategically during this seasonal slowdown to significantly increase bookings on PadSplit’s platform.
Effective tactics: first-week/month discounted rates, waived move-in fees during slow periods, referral incentives (note the 136% MoM spike in September referrals), and limited-time promotional rates that create urgency.
4. Sell the benefits of PadSplit (not just a room)
Communicate PadSplit’s advantages in your marketing efforts and member interactions:
- Affordability: 47% cost savings versus studios/1BRs with utilities included
- Weekly payment flexibility aligns with irregular income patterns
- Minimal upfront costs versus traditional deposits (often $3,000-5,000)
- Teledoc services to help residents prioritize their healthcare
- Community support, social connectivity, flexible terms
5. How to achieve operational excellence
- Build financial reserves: Maintain 6-12 months of operating expenses in liquid reserves to weather cash flow variability without forced asset sales.
- Control operating expenses: Given utility cost inflation (double general inflation) and projected insurance premium increases (8%), aggressively manage controllable costs through energy efficiency improvements, annual insurance shopping, preventive maintenance, and efficient vendor management.
- Prioritize member retention: Acquisition costs exceed retention costs. Focus on responsive communication, proactive maintenance, community-building initiatives, and reasonable renewal rate increases.
6. Market expansion considerations
For hosts considering expansion, prioritize markets with strong job growth in healthcare/logistics/services, positive net migration trends (FL, NC, TX, AZ, GA), traditional rental affordability challenges, favorable zoning/regulations, and acquisition opportunities from distressed traditional multifamily.
What’s coming in 2026 and how to position for it
Near-term rental outlook (Q4 2025-Q1 2026)
The outlook remains challenging for traditional rentals, but positive for PadSplit. As rents continue to decline elsewhere, PadSplit’s affordability and flexibility provide a defensive moat, enabling growth where others contract.
The short-term outlook points to continued softness through early 2026 as seasonal patterns compound oversupply challenges, yet PadSplit’s trajectory remains upward, proving resilience and outperformance even as the broader market slides.
Traditional rental expectations:
- Rents are likely to decline further as seasonality compounds oversupply
- Concession rates may climb above 35% nationally, with 7.9 million apartment units (out of 22.6 million nationwide) offering some form of incentive
- Move-in activity suppressed through December-February seasonal trough
- Net effective rents are declining faster than advertised rents
Traditional landlords face margin compression as incentives expand and renters retain strong negotiating leverage.
Economic factors:
- Two Fed rate cuts (25bp each), providing modest support
- Consumer confidence is likely to remain soft
- Job market cooling gradually without collapse, maintaining baseline housing demand
- Utility costs and insurance premiums continue on an upward trajectory
Tight cost control and conservative cash flow management are critical through the first half of 2026.
PadSplit sector outlook:
- PadSplit rents expected to moderate from +4.23% growth but remain positive
- Booking velocity may slow seasonally, requiring proactive rate adjustments
- Promotional spending is likely to be elevated through Q1 2026
- Market share gains are probable as the traditional rental affordability crisis intensifies
PadSplit’s structural advantages (affordability, flexibility, and all-inclusive pricing) position it for continued outperformance even as the overall housing market corrects. Unlike traditional long-term leases, which experience significant cash gaps during lease-ups and turnovers, PadSplit maintains steady income at ~86% occupancy by filling individual rooms, substantially reducing revenue loss during single-room turns.
Strategic positioning for 2026 and beyond
- Short-term: Focus on operational discipline, competitive pricing, and retention strategies to preserve occupancy and cash flow.
- Medium-term: Expect stabilization by late 2026 to early 2027 as supply-demand dynamics rebalance.
- Long-term: PadSplit operators are poised to capture expanding market share and institutional capital as affordability pressures intensify. While traditional rental markets contract, PadSplit’s model thrives, positioned to lead precisely when conventional housing falters.
How to navigate 2026 like a pro
Structural trends overwhelmingly support PadSplit sector growth.
- Supply-demand rebalancing: Multifamily construction declined sharply (-38.1% YoY), signaling developer response to oversupply. As existing excess inventory is absorbed and new supply moderates, rental fundamentals should improve. This rebalancing typically takes 18-24 months, suggesting that strengthening conditions will be in place by late 2026 or early 2027.
- Demographic tailwinds: Continued migration to Sun Belt metros, Millennial/Gen Z housing preferences favoring flexibility over ownership, gig economy expansion creating demand for flexible housing, and persistent essential worker housing shortages.
- Institutional interest: While traditional multifamily has disappointed institutional investors, alternative rental strategies, including PadSplit, are attracting increased attention. As PadSplit operators demonstrate consistent cash flows through market cycles, access to institutional capital should improve.
Portfolio diversification opportunities with PadSplit
The current market dislocation creates exceptional opportunities:
- Distressed traditional multifamily properties with elevated vacancies can be acquired below replacement cost and converted to PadSplit
- Single-family rental portfolios underperforming due to high turnover may benefit from a room-by-room conversion
- Older apartment properties struggling to compete with new supply can be repositioned as PadSplit
- Foreclosure activity up 17% YoY, offering below-market entry points (Q3 2025 foreclosure filings increased, serious delinquencies rising)
These repositioning portfolio diversification strategies require operational expertise, capital reserves, and market knowledge, but can generate exceptional risk-adjusted returns. The current market dislocation creates a narrow window where such opportunities are abundant before competition intensifies.
Investor sentiment
Real estate investor sentiment remains subdued. Fewer than 20% of investors expect market improvement over the next six months. REITs have significantly underperformed the broader equity market (Morningstar US Real Estate Index +4.84% YTD vs. +15% for the broader market).
However, the investors who continue to succeed recognize that market softness creates acquisition opportunities. Properties purchased during periods of weakness historically generate superior long-term returns. Lower interest rates improve investment economics; success requires operational excellence and strategic positioning in markets with strong fundamentals.
How to stay positioned for success in Q4 and onward
The market is down. PadSplit is up.
The Q4 2025 rental market represents a decisive inflection point. With 26 consecutive months of traditional rental rate declines, 24.8% inventory growth, and 33%+ of listings offering aggressive concessions, negotiating leverage has fundamentally shifted toward renters.
Traditional multifamily landlords face structural headwinds: oversupply, elevated vacancy (particularly 9.0% in the South), rising operating costs (utilities up double inflation, insurance up 8%), and softening consumer confidence.
Against this challenging backdrop, PadSplit demonstrates remarkable resilience. PadSplit’s +4.23% year-over-year rent growth, 86% mature occupancy rates, and strong operational metrics reflect superior competitive positioning. The narrowing price gap between PadSplit rooms ($853) and traditional studios/1BRs ($1,595-$1,629) enhances the value proposition precisely when household budgets face maximum pressure.
Critical success factors
- Proactive pricing is critical: Strategic 5-8% rate reductions in high-inventory markets maintain superior occupancy versus extended vacancies. The economics favor modest rate adjustments over vacancy periods.
- Operational excellence differentiates: Professional photography, compelling listings, seamless move-in experiences (4.3/5.0 score), and proactive maintenance and management separate high-performing properties from struggling hosts.
- Affordability advantage strengthens: PadSplit’s 47% cost savings versus studios/1BRs becomes increasingly compelling as traditional rental affordability erodes. This positions PadSplit to capture an expanding market share.
- Flexibility delivers value: Weekly payments, minimal upfront costs, and flexible terms address genuine pain points for the target demographic earning $25,000-$40,000 annually, with essential accessibility characteristics.
Geographic positioning matters: PadSplit’s concentration in high-growth Southern and Western markets (FL, NC, TX, AZ, GA) aligns with the strongest demographic tailwinds and sustained housing demand.
Now is the time to strengthen your portfolio
Near-term softness through Q1 2026 is expected as seasonal patterns compound oversupply. However, this creates exceptional acquisition opportunities: distressed properties at below-replacement cost, market share capture from struggling landlords, and infrastructure building during lower-pressure conditions.
Long-term fundamentals remain compelling. The housing affordability crisis, flexibility preferences, gig economy expansion, and essential worker shortages create durable demand that transcends current cyclical headwinds.
What to do today as an investor:
- Review your pricing and adjust your rates by 5-8% in competitive markets
- Invest in professional photography
- Deploy seasonal promotions from September to February
- Build six to 12 months of operational reserves
- Focus on proactive and preventative maintenance by delivering excellent service
- Consider distressed property acquisition opportunities
Your property could be earning significantly more. Calculate your potential earnings in seconds. Input your property details, and we’ll help you estimate your multi-year returns
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Data current as of Q3 2025; subject to change.
