Net Demand for Apartments Reaches Five-Quarter High

Excavators, cranes, forklifts and other heavy equipment machines are busy humming as 1 million apartment units are under construction in different markets of the country. And already there’s a peak of completed apartments, representing a 50-year high. At the end of the second quarter of 2023, 107,000 units were finished and ready to lease. This robust level of units is expected to continue through 2024 and then ease in 2025. 

How does this fit into the overall context of what’s happening in the multifamily apartment category/? The results at the end of the second quarter reflect stabilizing occupancy rates. Rent growth continues to cool fast. Apartment demand is rising. And net absorption is just short of surging new supply levels, writes Jay Parsons, chief economist at RealPage Analytics in a recent Market Research report.

Following are more results based on his report.

Net demand. For the second quarter, net demand was for 83,449 units, which represented a five-quarter high. But that was still below the robust numbers of the 2021 boom. Completions are expected to peak later this year and into next year 2024. 

Net new demand is occurring most in the Sun Belt or Mountain region but also in some Mid-Atlantic areas, with Houston ranking first, followed by Phoenix, Dallas/Fort Worth, Charlotte, Nashville, Austin, Atlanta, Washington, D.C., and Orlando in the top 10 spots. The next five included Denver, Northern New Jersey, Raleigh/Durham, Jacksonville and Huntsville. Along much of the West Coast, net demand was more limited.

There were also 17 markets where construction topped 25,000 units with New York also in this mix, along with Dallas/Fort Worth, Phoenix, Austin, Northern New Jersey, Houston, Atlanta and Washington, D.C.

Parsons said that demand continues to follow supply over the longer term, even if not always in the short term. The good news is that demand is helping to lessen-fueled vacancy spikes in most markets. At the end of June, apartment occupancy nationwide reached almost 95% or 94.7%down just 0.1 percentage points since the beginning of the year. In comparison, occupancy fell 1.2 percentage points in the first half of 2022, and then another 1.4 percentage points in the second half of last year.

Almost all major markets saw occupancy rates near 93% in June with exceptions in Memphis where it was 91.1% and in San Antonio where it was 92.2%.

Asking rents. These continue to grow but at softened levels for every month of this year to date. Same-store effective asking rents rose 0.46% between May and June, the smallest increase for any June in the last 10 years, aside from June 2020 when the country was in lockdown. Now, renters have more options, which puts pressure for rent growth to decrease. The year-over-year asking rent growth was 1.5%, the lowest since early 2021, and the report found that it may turn negative later this summer. As proof of the drop, the number of metro areas with YoY rent cuts numbered 35 in June, out of 150. 

Falling rents. They are falling in the South, Desert and Mountain regions and along the West Coast. Boise, where the market boomed during the pandemic, said to be due to less expensive homes and lots of options for outdoor activities, now has had a 6.2% YOY cut in asking rents. Others that fell included Phoenix, down 4.7% and Las Vegas at -4%, followed by three with cuts between 3% and 4%–Vallejo/Fairfield/Napa, Calif., Fort Walton Beach, Fla., and Reno, Nev. And the big reason for the cuts isn’t just demand but new construction deliveries.

Rent growth. Where the situation is looking up is across the Midwest and along the Northeast corridor, especially in college towns where rent increases rose 6% to 10% in Madison, Wis., Champaign-Urbana, Ill., Knoxville, Tenn., College Station, Texas and Fayetteville, Ark. After leaving campuses and heading home or to other destinations, students are back with a bang.