For the data behind the commentary, download the full Q1 2024 U.S. Multifamily Report.
Multifamily Demand Off to a Hot Start in 2024
It’s becoming evident that as long as the U.S. labor market remains robust, so too will demand for apartments across the country. The first quarter featured a resurgent labor market, with net employment increasing by roughly 830,000 over the first three months of the year. At the same time, apartment demand surpassed 85,000 units, making Q1 the strongest quarter for demand since the pandemic’s peak year in 2021. Net absorption soared 61% over last year’s robust first quarter and well above the average first quarter before the pandemic (73,000 units from 2017-2019).
Demand in the first quarter remained robust across nearly all markets nationally, as 85 of the 90 markets tracked registered positive absorption. Phoenix led the nation in absorption over the first quarter (roughly 5,000 units absorbed), while Dallas-Fort Worth (4,900) and New York (3,800) took the second and third spots. On a percentage basis, Huntsville, Alabama, continues to top the nation, absorbing 2.3% of its smaller inventory, at just under 1,000 units, followed by Boise, Idaho and Knoxville, Tennessee, at 2% and 1.8%, respectively.
The Occupancy Slide Is Moderating
Even with strong demand, new deliveries continued to outpace for the 10th straight quarter. More than 116,000 units delivered in the first quarter, down from the peak of 126,000 units nine months ago, but still well above the historical average. As a result, overall vacancy jumped to 8.7%—the highest recorded rate since 2000. Excluding properties in lease-up, however, brings the vacancy rate down 210 bps to just under 6.6%, slightly above the pre-pandemic level. Recently delivered properties typically take at least 12 months to lease-up as part of managing lease expiration risk. That said, new supply continues to put upward pressure on both stabilized and overall vacancy, creating more options for renters and causing rent growth to soften.
Sun Belt markets largely topped the list of vacancy increases over the last year, which is unsurprising given that the region saw roughly three times the number of deliveries in the first quarter as any other region in the country. Stabilized vacancies are generally tighter in these regions, but supply was bound to put pressure on vacancies. In the first quarter, we also observed an increasing share of markets where vacancy either stabilized or declined. More than a quarter of the markets (23 out of 90) tracked by Cushman & Wakefield saw vacancy rates remain flat (increasing by 30 bps or less) or fall—headlined by Stamford, Connecticut (-227 bps), and the broader Bay Area, where minimal deliveries have allowed fundamentals to show some improvement. Over the past quarter, San Francisco (90 bps), East Bay (73 bps) and San Jose (39 bps) have seen their vacancy rates decline at some of the fastest rates in the nation.
Rent Growth Was Well Below Average, As Competition Increased
With supply outstripping demand, rent growth continues to decelerate. For the past four quarters, rent growth has remained below 2%—about half the rate averaged from 2010-2020. In the first quarter, rent growth registered just 1.5%, as new construction added to the competitive rental landscape. While rent growth remains in positive territory, the roughly 760,000 units under construction, accounting for about 6% of inventory, will likely place further downward pressure on rent going forward until the market has time to absorb the new units.
The Midwest and Northeast continue to see outsized rent growth, with YOY gains of 4.2% and 3.0% respectively. The South and West regions continue to lag, growing by 0.6% and 0.8%, respectively, over the past year. Buffalo (6.1%) leads the nation in rent growth, while Grand Rapids, Northern New Jersey and Knoxville tied for the second spot, with 6% rent growth over the past year. On the other end of the spectrum is Austin, Texas, which continues to work through a massive supply wave, with more than 10% of its inventory delivered over the past year. In the first quarter, rents in Austin declined by 4.6% YOY.
For the data behind the commentary, download the full Q1 2024 U.S. Multifamily Report.
