Year-to-date (YTD) absorption has nearly surpassed the total demand from last year
A new report from Cushman & Wakefield bears out the findings of other research reports, namely that demand for multifamily units is booming and so is absorption. Vacancy has reached its lowest point since mid-2021. With construction way down, all the signs point to a recovery of fundamentals, including rents, in the next two years.
With 138,000 units absorbed in the second quarter, multifamily vacancies were pushed down 10 basis points. "Year-to-date (YTD) absorption has nearly surpassed the total demand from last year and is up 75% over the first half of 2023," Cushman reported. It believes the future looks good as a resilient labor market stimulates household formation and wages grow.
2Q2024 was the strongest quarter on record since 2000, the report said. Year-to-date saw absorption of nearly 230,000 units, almost surpassing the total of 253,000 units for the whole of 2023.
"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," Cushman said.
There were lower vacancy rates in more than half of the 90 markets Cushman tracks in the second quarter than in the first. The sharpest drops were in Reno, Minneapolis, and Richmond. In each city, vacancy fell more than 90 bps in the quarter. By region, vacancies in the Midwest dropped about 30 bps. Even the Sunbelt, with the highest regional vacancy rate of 10%, saw it fall for the first time since the pandemic, with absorption rising most in Dallas/Fort Worth, Houston, New York, Austin, and Atlanta.
Despite the surge in uptake, asking rent growth did not match it. It climbed 1.7% over the year, about half its historical average. "The competition for leasing remains fierce in the face of nearly 265,000 units that were delivered in the first half of 2024," the report noted.
The Midwest (4%) and Northeast (3.3%) continued to lead the nation in annual rent growth. The Sun Belt, up 1% quarter-over-quarter, and the West, up 0.9%, could only manage slight upticks in rent.
"Approximately 695,000 units remain under construction, which will create more competition for leases over the next 18 months." At the same time, the 130,000 units started in 2024 are 60% fewer than in the same period in 2023. "The sharp falloff in new construction starts has emptied the pipeline as projects deliver. 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."
Despite the falloff, the report said Sunbelt markets could recover more quickly than the supply pipeline suggests because they are some of the most in demand in the nation. For the nation as a whole, Cushman predicted that fundamentals should begin to recover in 2025–2026.
Source: Multifamily Absorption Posts Strongest Quarter Since 2000
https://www.creconsult.net/market-trends/multifamily-housing-demand-record-absorption/
Annual multifamily rent growth has hovered around 1% for about a year following a rapid deceleration in 2021 and 2022.
The U.S. multifamily market has enjoyed the smallest supply-demand gap in 11 quarters as it absorbed 170,000 units during the second quarter on 180,000 new units delivered. Vacancy remained stable from the first quarter at 7.8%, marking the first quarter in almost 3 years that vacancy has not risen, according to a report on 2Q multifamily rent trends by Apartments.com.
Asking rent growth dipped slightly year over year during June to 0.9% compared with 1% growth in the four prior months, although month-to-month rent growth decelerated to 0.1% after three months of 0.4% growth. Annual rent growth has hovered around 1% for about a year following a rapid deceleration in 2021 and 2022.
Both Midwest and Northeast markets turned in a strong performance with rent growth of 2.4% over the past four quarters. These markets have benefited from avoiding oversupply conditions, the report said. Western markets posted rent growth of 0.5% on weak demand and elevated completions, and heavy oversupply conditions in the South kept annual rent growth at zero, according to the report.
Louisville, Kentucky, posted the strongest annual asking rent growth of the top 50 markets nationwide at 4.9%, followed closely by Cleveland and Washington, D.C. Meanwhile, rents fell by 5.7% in Austin, Texas, while rent losses ranged from 3.1% to 2.2% in Tucson, Arizona; Raleigh, North Carolina; Jacksonville, Florida; and Atlanta. Eight of the bottom ten performing markets are in the South, where supply-demand imbalances remain a challenge, said Apartments.com.
Most new supply in multifamily is aimed at the luxury market (4- and 5-star units), which led absorption with just over 123,000 units for the quarter. However, rent growth was stronger in the mid-priced 3-star property market at 1.5% compared with the luxury market where rents grew only 0.2% at the end of June. Net absorption in the 3-star market was 43,000 during the second quarter, up from 33,000 units in the first three months. Improving consumer confidence, lower inflation and sustained economic expansion helped boost 3-star demand, the report said.
Those factors also boosted demand for 1- and 2-star properties, which posted positive absorption for the first time in 2 years. Households at this price point struggled in 2022 and 2023 with higher housing costs and the elevated costs of everyday items, pushing some to seek alternative housing solutions such as moving in with roommates or returning to the family home.
The multifamily market is projected to add 574,000 units in 2024, which is only a slight pullback from the prior year's record. Markets in the South and luxury properties remain most at risk for weakness due to oversupply conditions, while Midwest and Northeast locations and mid-priced 3-star properties could outperform, the report said.
Source: Midwest, Northeast Highlight Improving Multifamily Market
https://www.creconsult.net/market-trends/annual-multifamily-rent-growth-2024/
