Multifamily Absorption Reaches Record High in Q2

The gap between demand and supply is narrowing.

If there's a bright spot in the challenging multifamily landscape, it's that demand for apartments has pushed absorption to one of its highest points in 24 years, with the most recent six months a striking example.

"The impressive demand reading in year-ending 2nd quarter 2024 may be difficult to overstate," according to a new report from RealPage Market Analytics, citing the 390,000 units that were leased on net over the past 12 months. Indeed, that was the eighth-highest annual number since the year 2000.

In the first and second quarters of 2024 alone, 257,000 units were absorbed "essentially in line with the all-time high set in the pandemic-era demand swell which saw about 270,000 units absorbed in the first half of 2021," the report noted.

However, instead of the spike in demand, the supply side has grabbed much of the media attention, the report observed. And it noted that rampant oversupply that exceeds demand has kept rent growth down. "A four-decade peak in new deliveries is keeping rent expansion modest."

More than 500,000 new market-rate apartments were delivered in the past year 45% more than the previous year and the largest number since 1986. It is expected that 629,000 more will be supplied in the next year.

However, signs that the gap between demand and supply is narrowing are that national occupancy and rent growth rates have stabilized. Occupancy held steady at 94.2% in June as it had for the previous three months, though down 0.4% year-over-year. Rent grew 0.2% in the year ending June and the report said it is unlikely to rise much in calendar year 2024.

"Still, stabilization of rental rates considering the background of a two-generation supply wave supports the idea of incredible demand capacity in the market today," it noted.

Higher demand was observed throughout the nation, but the South stood out in this regard. The region absorbed 226,000 units on net in the past year 60% of the total for the country as a whole. The West's absorption of 89,000 units was its strongest annual performance in two years.

The Northeast, with 95.8% occupancy, saw 30,500 units leased and the Midwest 44,100, with 94.8% occupancy. "Correspondingly modest supply pressure means those two regions are seeing larger annual rent growth," the report stated. "The lower the annual inventory, the more likely a market is to post solid rent growth."

Nationally, rents grew 0.2% in June, but in the Midwest they rose 2.6% and in the Northeast 2.4%, compared to a drop of 1.4% in the South and no change in the West.

Ten major markets posted annual effective rent growth of 2.5% or more in June. Kansas City led the nation with a 3.8% increase. Other markets in this category were Washington, DC, Cleveland, Cincinnati, Milwaukee, Greensboro, Virginia Beach, Newark, Columbus, and Chicago.

Austin suffered the worst slump in rents in the month, with a drop of 7.7%, followed by Jacksonville, down 4.9%, Atlanta, down 4.8%, and Raleigh/Durham, down 4.4%. Other markets that saw declines of 3% or more were San Antonio, Phoenix, Charlotte, Orlando, Dallas, and Salt Lake City.

Source: GlobeSt/ALM