Multifamily Absorption Posts Strongest Quarter Since 2000

A new report from Cushman & Wakefield bears out the findings of other research reports — namely that demand for multifamily units is booming, and so is absorption. Vacancy has reached its lowest point since mid-2021. With construction way down, all the signs point to a recovery of fundamentals, including rents, in the next two years.

With 138,000 units absorbed in the second quarter, multifamily vacancies were pushed down 10 basis points. “Year-to-date (YTD) absorption has nearly surpassed the total demand from last year and is up 75% over the first half of 2023,” Cushman reported. It believes the future looks good as a resilient labor market stimulates household formation and wages grow.

2Q2024 was the strongest quarter on record since 2000, the report said. Year-to-date saw absorption of nearly 230,000 units — almost surpassing the total of 253,000 units for the whole of 2023.

“At 8.6%, vacancy remains 150 bps above pre-pandemic levels, but stellar demand levels have resulted in a directional change in the vacancy rate for the first time in 11 quarters,” Cushman said.

There were lower vacancy rates in more than half the 90 markets Cushman tracks in the second quarter than in the first. The sharpest drops were in Reno, Minneapolis, and Richmond. In each city, vacancy fell more than 90 bps in the quarter. By region, vacancies in the Midwest dropped about 30 bps. Even the Sunbelt, with the highest regional vacancy rate of 10%, saw it fall for the first time since the pandemic, with absorption rising most in Dallas/Fort Worth, Houston, New York, Austin, and Atlanta.

Despite the surge in uptake, asking rent growth did not match it. It climbed 1.7% over the year, about half its historical average. “The competition for leasing remains fierce in the face of nearly 265,000 units that were delivered in the first half of 2024,” the report noted.

The Midwest (4%) and Northeast (3.3%) continued to lead the nation in annual rent growth. The Sun Belt, up 1% quarter-over-quarter, and the West, up 0.9%, could only manage slight upticks in rent.

“Approximately 695,000 units remain under construction, which will create more competition for leases over the next 18 months.” At the same time, the 130,000 units started in 2024 are 60% fewer than in the same period of 2023. “The sharp falloff in new construction starts has emptied the pipeline as projects deliver. For the first time since the third quarter of 2021, the Sun Belt no longer has the largest share of units under construction as a percentage of its inventory. That honor now belongs to the Northeast, with 6.2% of its inventory under construction.”

Despite the falloff, the report said Sunbelt markets could recover more quickly than the supply pipeline suggests because they are some of the most in demand in the nation. For the nation as a whole, Cushman predicted fundamentals should begin to recover in 2025 to 2026.