For the data behind the commentary, download the full Q2 2024 U.S. Multifamily Report.
Vacancy Declines for the First Time Since Mid-2021
With weakening fundamentals over the past few years, the market has been slowly approaching an inflection point. In the second quarter, U.S. multifamily vacancy fell by 10 bps, after narrowing increases over the past handful of quarters. It comes as the result of 138,000 net move-ins, the best quarter for absorption since the third quarter of 2021—and the fourth strongest quarter on record since 2000. The YTD total absorption of about 230,000 units has nearly surpassed 2023’s total of 253,000 units just halfway through the year. At 8.6%, vacancy remains 150 bps above pre-pandemic levels, but stellar demand levels have resulted in a directional change in the vacancy rate for the first time in 11 quarters.
In the second quarter, more than half of the 90 markets Cushman & Wakefield tracks had declining vacancies over the previous quarter. Reno, NV (-101 bps), Minneapolis, MN (-96 bps), and Richmond, VA (-94 bps) led the nation, each posting declines of more than 90 bps quarter-over-quarter (QOQ). In aggregate, the Midwest region outpaced other regions and had vacancies fall about 30 bps QOQ. The Sun Belt, with the highest regional vacancy at more than 10%, saw vacancies decline for the first time since the pandemic. Absorption gains were strong across the board, with all 90 tracked markets registering positive absorption. The top five absorption markets in the second quarter were Dallas/Ft. Worth (11,000 units), Houston (7,800 units), New York (6,300 units), Austin 6,300 (units) and Atlanta (6,200 units).
Rent Growth: It’s All About Construction
The competition for leasing remains fierce in the face of nearly 265,000 units that were delivered in the first half of 2024. As a result, asking rents grew just 1.7% year-over-year (YOY) in the second quarter, marking the fifth straight quarter of sub-2% rent growth. The growth rate is less than half of the pre-pandemic (2017-2019) average of 4.2% and nearly half of the all-time historical average of 3.2%. While the construction pipeline has dwindled and few new projects are breaking ground, approximately 695,000 units remain under construction, which will create more competition for leases over the next 18 months.
The Midwest and Northeast continue to lead the nation in rent growth, growing by 4.0% and 3.3% respectively over the past year. Both the Sun Belt and the West recorded QOQ rent growth improvements, though they remained below the U.S. average at 1% and 0.9%, respectively. More than half of the 90 markets Cushman & Wakefield tracks posted rent growth above 3%, with Louisville, KY (6.4%), Buffalo, NY (6.2%) and Tulsa, OK (6.1%) leading the way. Most of these markets have had limited new supply so far this year. Of the 47 markets with more than 3% rent growth, 33 (about 70%) had less than 2% of their inventory deliver, below the national average. Conversely, 25 of the remaining 43 markets with less than 3% rent growth had greater than 2% of their inventory deliver in the first half of the year.
Construction Is Pulling Back Nationwide
Developers are hitting the brakes for a variety of reasons, including higher interest rates, tighter credit markets, ample supply already in progress and cap rate pressure. Only 103,000 market-rate units have started construction so far in 2024, marking a decrease of approximately 60% compared to the first half of last year. The sharp falloff in new construction starts has emptied the pipeline as projects deliver. Only 695,000 units remain under construction, marking the lowest figure since the fourth quarter of 2021.
The three largest Texas markets—Houston, Austin, and Dallas/Ft. Worth—have had their pipelines collectively shrink by nearly 20,000 units over the past quarter and nearly 60,000 units over the past year. For the first time since the third quarter of 2021, the Sun Belt no longer has the largest share of units under construction as a percentage of its inventory. That honor now belongs to the Northeast, with 6.2% of its inventory under construction.
For the data behind the commentary, download the full Q2 2024 U.S. Multifamily Report.
