Apartments' Record Demand Still Can't Overcome Supply

Developers are delivering record numbers of units but there are too few new renter households to fill them, according to Apartments.com’s Q3 2023 rent growth trends report.

Supply and demand imbalances continue in fast-growing Sun Belt markets while markets in the Northeast and Midwest fared well among the top rent growth leaders.

Demand hit its highest level since 2021 at 116,000 units and supply came in at 140,000 units, causing the national vacancy rate to move up 10 basis points to 7.0%.

“The rise in vacancy marks the slowest increase since the vacancy rate began ascending at the end of 2021, signaling that the market could be on the cusp of stabilizing,” according to the report.

Jay Lybik, National Director of Multifamily Analytics at CoStar Group said in prepared remarks that the supply-demand imbalance caused national vacancy rates to move up again, but at a slow pace, “providing positive signals that the multifamily market is approaching stabilization.” Year-over-year asking rent growth decelerated from 1.3% to 0.8% over the last 90 days as upward pressure on vacancy played out.

Sun Belt markets, which experienced the fastest rent growth in 2021 and the first half of 2022, are now facing the largest imbalance between supply and demand with developers delivering record numbers of units and too few new renter households to fill them.

Atlanta and Austin, among others, finished the quarter with negative year-over-year rent growth.

Northern New Jersey and Cincinnati held the top rent growth spot at 3.4% in the third quarter, with both regions experiencing limited new supply additions, allowing multifamily conditions to remain significantly closer to balance than in Sun Belt markets.

The multifamily market this year is approaching the most deliveries since the mid-1980s with an estimated 554,000 units of new supply coming online this year.