Third-quarter performance outpaces expectations, Sun Belt rent growth struggles persist
Multifamily Market Sees Strongest Demand Since 2021 Lowering National Vacancy Rate
Multifamily demand expanded at the highest rate since 2021 during the third quarter of this year, with 176,000 units absorbed in an indication of a strong net change in occupancy.
While the second quarter historically has the highest demand for apartments, this year the third quarter was significant enough to outperform the previous three months.
Over the first three quarters of 2024, demand for rental apartments has already surpassed last year’s total by more than 100,000 units. And for the first time in 11 quarters, supply did not outstrip demand in the third quarter.
As a result, the vacancy rate has declined for the first time in three years, dropping 10 basis points to 7.8% at the end of the third quarter. This is the first time the national apartment vacancy rate hasn’t risen in almost three years, and it is forecast to hold steady through the end of the year.
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Nine out of the 10 U.S. markets with the highest apartment vacancy are in the Sun Belt. Slowing multifamily deliveries will allow these markets to catch their breath and begin soaking up excess units. Markets with the lowest apartment vacancy rates at the end of the third quarter tend to be in the Midwest and Northeast, where supply and demand have remained more balanced.
Washington, D.C., ended the third quarter with the strongest annual asking rent growth of the top 50 markets nationwide, 3.5%. Detroit and Richmond tied for second, at 3.4%.
At the opposite end of the scale, average apartment rents fell by 4.7% year over year in Austin, Texas. Meanwhile, Raleigh, North Carolina, Jacksonville, Florida, and Phoenix weren’t far behind, with annual rent growth ranging from -2.9% to -2.2%. Still facing serious supply-demand imbalances, nine out of the top 10 bottom-performing markets are in the Sun Belt. Only four major Sun Belt markets — Fort Lauderdale, Florida, Houston, Las Vegas, and Miami — finished the third quarter with positive rent growth.
The stage is set for that multifamily recovery to begin in earnest during 2025, as declining completions combine with solid demand to absorb excess units and push down vacancy rates.
The biggest downside risk to the positive multifamily outlook for 2025 is the possibility that an expanding conflict in the Middle East could create an economic supply shock, with higher oil prices reigniting inflation. If this occurs, it could hurt multifamily demand right when market conditions are poised for expansion. However, if this risk can be avoided and the US economy continues expanding throughout 2025, the multifamily recovery should remain on track.
Source: CoStar
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