Apartment Supply Continues to Outpace Demand
Rent growth goes negative in some markets amid the largest new development pipeline since the early 1970s.
Supply continues to outpace demand across the country with 520,000 new units expected to be delivered by the end of the year.
“Over the past six quarters, supply has continued to outpace demand and the second quarter of 2023 was no exception,” Jay Lybik, National Director of Multifamily Analytics at CoStar Group, said in prepared remarks.
“Despite positive absorption and rising renter demand, it was not enough to match the 140,000 units delivered in the quarter which pushed the national vacancy rate higher.”
Current fundamentals are not being kind to the Sun Belt markets, which experienced the fastest rent growth in 2021 and the first half of 2022.
Among the REITs, GlobeSt.com reported, those that are coastal focused outperformed the Sun Belt heavy peers by 17 percentage points in the first half of 2023, on the heels of substantial underperformance for the better part of the last three years,” according to Green Street.
Apartments.com said the Sun Belt is now facing the largest imbalance between supply and demand and increasing vacancy rates have led to the deceleration of year-over-year asking rent growth, from 2.8% to 1.1% over the second quarter of 2023, according to the report.
Markets finishing the second quarter with negative year-over-year rent growth, include Las Vegas and Austin with 21.4% and 17.7% rent growth, respectively, at the end of 2021 to negative 3.3% today.
The trend continues that Midwest markets dominate the list of those with positive rent growth. Cincinnati was tops at 4.2% and five other Midwest markets are among the top 10 rent growth leaders.
“The elevated delivery schedule is expected to persist into 2024 and without a meaningful recovery in demand, vacancy rates will likely rise further and slow to no rent growth will be seen through the first half of 2024,” Apartments.com said.
New development, nationally, remains above 1 million, the largest pipeline since the early 1970s. Seventy percent of those units are highest Class A, with current projections having 520,000 delivered this year, which will boost 4- and 5-star vacancy rates to 9.1% at the end of June, the report said, and bring top-end annual rent growth to negative 0.2%.