Stabilized vacancy increased 34 basis points year-over-year
Lower Vacancy Does Not Tell the Full Apartment Story
Newly completed apartments are accounting for most of the demand, leaving a more difficult leasing environment for many stabilized properties despite an improvement in the national vacancy rate.
Four- and five-star communities absorbed more than 111,000 units in the second quarter or nearly 68% of total U.S. apartment absorption. Those properties are pulling renters into recently delivered inventory, but they also continue to carry a 10.2% overall vacancy rate—the highest among property-quality segments.
The figures come from an analysis provided by CoStar and Apartments.com and authored by Grant Montgomery. Its central finding is that a declining headline vacancy rate is not necessarily translating into better occupancy at apartment communities that have completed their initial lease-up period.
Demand Favors New Product
Apartment absorption totaled 163,739 units in the second quarter, exceeding the 118,047 units added to supply. That imbalance helped bring national vacancy down to 8.15%, a 26-basis-point decline from the first quarter and 14 basis points lower than a year earlier.
For investors, however, the more relevant distinction may be between the full inventory and stabilized assets. Stabilized vacancy, which excludes properties still leasing up after completion, increased 34 basis points year-over-year. The 48-basis-point spread between the movement in overall and stabilized vacancy indicates that much of the recent occupancy progress occurred in new developments rather than across operating properties.
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Luxury Segment Shows Wider Gap
The divergence is even greater in the highest-rated segment. Overall vacancy at four- and five-star properties fell 138 basis points from a year earlier, while stabilized vacancy in the same group rose 37 basis points. That produced a 175-basis-point gap between the two measures.
The data point to a market in which new luxury supply is both absorbing renters and carrying a substantial share of the vacancy created by the recent development cycle. Established luxury communities, meanwhile, remain in direct competition for tenants, even as the broader segment posts stronger top-line absorption.
Market Performance Varies
Fifteen of the nation’s 50 largest apartment markets recorded lower overall vacancy from a year earlier while stabilized vacancy increased. Austin, San Antonio, Memphis and St. Louis were among the markets with particularly pronounced differences within four- and five-star apartments.
Austin provides the clearest example. Overall vacancy among its four- and five-star properties declined 398 basis points year-over-year in the city, while stabilized vacancy increased 34 basis points. San Antonio showed a similar pattern, with overall vacancy declining in its upper-tier inventory even as stabilized vacancy rose.
Not all markets are improving on the headline measure. Cincinnati recorded the largest year-over-year vacancy increase among major markets, rising 161 basis points to 9%. Cleveland followed with a 121-basis-point increase. CoStar’s analysis noted that vacancy rose in some markets despite less new supply, underscoring the importance of local demand conditions.
Regional Picture Remains Split
The Northeast and Pacific regions posted the lowest average apartment vacancy rates, at 5.1% and 5.7%, respectively. The South and Mountain regions had the highest rates, at 10.8% and 10.2%.
Still, every major region registered an increase in stabilized vacancy from a year earlier, including regions where overall vacancy declined. That pattern suggests the sector’s recovery is advancing unevenly: demand is improving, but it is concentrated in recently completed apartments, while many existing properties continue to work through the effects of the supply wave.
Source: GlobeSt.
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