Apartment Supply and Demand Gap Narrows to Three-Year Low

For the third quarter, the gap between supply and demand for apartments in the U.S. has been the smallest in three years, according to a new analysis by Apartments.com.

In this period, 176,000 apartments were absorbed and 178,00 were delivered. This helped to drive down vacancy rates by 10 basis points to 7.8% — the first quarterly fall since the end of 2021.

Rents, however, rose only marginally around the country and in many cases, they fell. Average annual asking rent grew just 1.1%, lower than the 1.2% recorded in July. Quarter-over-quarter, rents slipped by 0.5% after rising 1% in each of the previous two quarters.

The strongest annual rent growth in the nation’s top 50 markets was recorded in Washington, DC at 3.5%, followed by Richmond and Detroit at 3.4%. In contrast, annual asking rents in the Sun Belt were especially hard hit by a supply-demand imbalance. They fell by 4.7% in Austin, with smaller losses in Raleigh, Jacksonville, Phoenix and Atlanta.

By type, 147,000 four and five-star units were absorbed in the quarter. But with most of the new supply in the luxury market, annual asking rent growth was weakest in this segment at just 0.3% in the third quarter while the vacancy rate stood at 11.1%. On the other hand, mid-priced assets in the three-star range were sought after with vacancy rates of 7.1% and 1.5% rent growth.

“Improving consumer confidence, lower inflation, and sustained economic expansion likely helped boost 3-star demand,” the report commented.

The multifamily sector is scheduled to set a 40-year delivery record this year, with 636,000 new units added. Sun Belt and luxury properties remain at the most risk from oversupply, while the Midwest, Northeast and three-star properties should overperform, the report concluded.