Multifamily Nears Inflection Point
The apartment sector’s fundamentals could tighten more quickly than our current base case if the strong trends continue
America’s multifamily market could be nearing an inflection point as year-to-date multifamily absorption has risen 75% compared to the first half of 2023. Plus, the economy added 500,000 new jobs in the second quarter, and real wages grew.
Cushman & Wakefield’s U.S. national multifamily report for Q2 2024 noted that multifamily vacancies declined by 10 basis points in the quarter as 138,000 units were absorbed. Inoccupancies fell in 90 of the markets the company tracks, led by the Midwest and including the oversupplied Sunbelt. “With weakening fundamentals over the past few years, the market has been slowly approaching an inflection point,” it commented.
Year-over-year, the national vacancy rate rose to 8.6% in the quarter, but the company predicted it would fall over the coming 12 months. Net absorption in the quarter rose to 138,111 units and is expected to continue to rise in the coming year. Market rent climbed to $1,849 in the quarter, but is expected to fall in the future, with rent growth of 1.7% continuing to slip.
At the same time, construction starts were down nearly 60% in the first half of 2024 compared to the same period in 2023. Still, 695,000 units remain under construction. Excess supply has also slowed rent growth to just 1.7%, less than half the prepandemic average of 4.2% and almost half the historical average of 3.2%. Even so, 47 markets – generally those with limited supply and few new deliveries — had rent growth above 3%.
When “construction starts plummeting, fundamentals should begin to recover in earnest in 2025-2026,” the report said. It noted that high mortgage rates for single-family homes will encourage many households to rent rather than buy. Even the Sunbelt, with significant new construction that is now pulling back, could recover more quickly than anticipated because its markets are in high demand.
“The apartment sector’s fundamentals could tighten more quickly than our current base case if the strong trends we observed in the second quarter continue,” it noted.