Strong Apartment Demand Closing Gap With Supply Influx

The U.S. multifamily sector appears to have escaped the worst of the dire consequences on rent and absorption that many experts predicted as a result of overbuilding. Instead, strong demand led to increased net absorption, “marking the third-strongest first quarter in more than 20 years and surpassing the pre-pandemic first-quarter average,” a new CBRE report revealed.

Some 73,700 new apartments certainly materialized in 1Q 2024, contributing to a glut of 429,500 in the rolling-four-quarter total. but net absorption totaled 52,200 units. “Demand continues to close the gap with new supply, as some markets had near parity between the two in Q1,” the report noted. Deliveries in 2025 and later are expected to fall along with new construction.

However, the overall multifamily vacancy rate rose by 10 bps to 5.5% and is likely to continue to do so through midyear, it predicted, though vacancy rates fell in 27 markets in the quarter. And potential buyers remained skittish, with multifamily investment volume slumping 28% to $19.8 billion during the quarter – the lowest quarterly total since 2Q 2020. Annual rent growth held the line, rising 0.4% in the quarter to an average of $2,163 but is expected to accelerate in the second half as new construction falls.

The Midwest and Northeast enjoyed positive rent growth across all markets in 1Q 2024, but it declined in the Southeast, South Central, Mountain and Pacific regions though more slowly than before. Positive net absorption was recorded in 56 of the 69 markets CBRE tracks, and in the top 20 markets it nearly equaled the pace of new supply. “This may portend a shift whereby demand eclipses new supply later this year, reducing overall vacancy,” the report commented.