Multifamily Absorption Hits Second-Highest Level on Record

However, apartment rents remain flat.

The U.S. multifamily market posted notable gains in the third quarter amid declining new inventory and modest rent growth. According to a new report by CBRE, the national multifamily vacancy rate decreased by approximately 20 basis points to 5.3%, despite apartment completions reaching 124,300 and net absorption hitting 153,000 units.

CBRE found that Q3’s net absorption was the second highest rate of absorption for a third quarter since the firm began tracking the market in 1985, and that it reflects a 72% increase above pre-pandemic third-quarter averages. Demand for housing outpaced the new supply for the second consecutive quarter; however, even as vacancy trends toward its long-term average of 5.0%, apartment owners continue to face challenges with flat rents and lower transaction volumes.

CBRE found that 26 of the 69 U.S. markets it tracks had negative rent growth compared to the third quarter of 2022. This marks a slight improvement over Q2, but overall, rents are rising in markets with limited construction and declining in areas with increasing inventories. The Northeast, Pacific, and Midwestern regions saw year-over-year rent growth, while the Southeast, South Central, and Mountain regions reported declines.

Year-over-year rent growth in New York, Los Angeles, and Chicago reached 2.0%, -0.8%, and 2.8%, respectively, while Austin, Jacksonville, and Raleigh saw declines between 4.7% and 8.1%.

Investment volume in Q3 fell by 16% from the previous quarter, mainly due to Blackstone’s acquisition of AIR Communities. However, CBRE noted that single-asset and portfolio investment volume increased by 12% when excluding the Blackstone deal. Multifamily represented 36% of all real estate investment volume for the quarter, underscoring investor interest in the sector’s strong supply-demand fundamentals despite broader market challenges.

CBRE’s report comes two months after Newmark found that demand for multifamily rose by 102% in Q2 as the gap between homeownership and rental costs continued to widen, with 157,000 units delivered. Annual rent growth over the same period was just 0.2%, reflecting persistently high demand for rental housing across metro areas.