Multifamily Absorption Skyrockets in Q1

A record number of apartments were absorbed in Q1.

Surging by nearly 104,000, that blows away the average of 12,500 recorded in that time frame over the past 30 years, Marcus & Millichap reported.

“With traditionally strong spring and summer months still to come, should put net absorption on track to reach a three-year high, barring any unexpected setbacks,” the report said.

Additionally, there was an eight-month low in the time an average apartment sat idle, at 28 days – a “significant recovery” from 34 days in December of 2023.

The number of new lease applications per unit also rose to an eight-month high in April, while the rate of signed renewals reached the strongest measure since August 2023, reflecting demand from both new and existing tenants, Marcus & Millichap said.

This influx of new supply remains a major influence on vacancy and rents as more than 135,000 units were completed in the US in Q1 – the largest quarterly tally on record.

Nonetheless, vacancy rose by 10 basis points during the first quarter to 5.9 percent.

Construction was again clustered with just eight major markets — Atlanta, Austin, Charlotte, Dallas-Fort Worth, Houston, New York City, Orlando, and Phoenix — combining for more than one-third of national completions during the first quarter.

“A recent pullback in multifamily permits, however, may signal a longer-term, more substantial, slowdown is brewing,” Marcus & Millichap said.

Year-over-year in Q1, nine major U.S. markets had annual inventory growth of more than 4 percent – Austin, Charlotte, Nashville, Raleigh, and Salt Lake City, which had supply expansions of at least 6.5 percent.

Concessions are also coming to dominate. In March 2024, the share of apartments offering concessions climbed to a 35-month high of 13.6 percent, rising by over 500 basis points from the same month one year prior.

They are being found in upper-class properties and are increasing in lower-quality rentals.

“Historic new supply in a cluster of Sun Belt markets is the primary contributor to this national hike,” according to the report.

Multifamily transactions fell for a third consecutive quarter as elevated debt costs remain a persistent challenge.

“Strong first quarter absorption may help boost sentiment going forward; however, soft rent growth and a supply-induced concession surge may counterbalance the improved demand outlook,” according to the report.