The New Normal for Apartment Demand

What’s “normal” when it comes to renters seeking apartments/? It depends, of course, on the economy and what units are available at the times when numbers are analyzed. In the case of apartments needed, what’s happening now is that the current rental market is stronger than its immediate past but weaker than the long-term norm of as far back as 20 years. 

RealPage Market Analytics looked at the second quarter results of this year, and they proved mixed. Absorption of the approximate 84,000 units across the country were overall positive. Perhaps, more important, is that this was the largest quarterly absorption figure since last year’s first quarter when strong absorption led to a total of 84,000 units.

However, when compared with the same quarter average through the 2010s decade, the numbers look less rosy since they were 60% of those figures. Also, retention rates are down from last year’s peak. Based on current absorption figures, renters are hunting for new leases according to traffic numbers, and results reflect a seasonally normal rate.

Occupancy for this same second quarter 2023 period is at 94.7%, or 10 basis points off the nation’s 20-year average. Vacancy rates climbed 2.1% over the past 12 months as more new units became available, giving renters more choice in choosing a unit. In the months from April through June, about 108,000 new units became available. Coupled with the trailing 12-month figure, that meant a total of almost 370,000 apartment units.

All the new supply influences performance readings, too. The country’s quarterly rent growth in this year’s second quarter rose to almost 1.1% as a result of the new supply, compared with a longer-time frame for the same second quarter when the 20-year average for rent growth was 1.6%.

Rent growth averaged 3.5% year-over-year as demand outpaced supply during the last decade. It never dipped below 2.5% for the years up to 2020. But this past second quarter showed rents growing less, down to 2.3% year-over-year, the lowest growth rate since 2010’s third quarter. Because of the current increased supply, rebalancing what’s available and in demand will become the new norm. That should help the market’s long-term health and evenness, RealPage reported. 

At the same time, regional results reflect variations. Some areas show hyper-supply; some reveal slowing demand and rent contraction. But the RealPage report also concluded that these are isolated cases since only 17 of the country’s 150 largest apartment markets or 11% recorded rent cuts on an annual basis in this year’s second quarter.