With demand for multifamily properties outpacing new deliveries, the overall multifamily vacancy rate fell to 5.3% during the third quarter on its way to an expected return to its long-run average of 5%, according to a CBRE report.

Vacancy rates in most markets remained above their long-term averages due to large amounts of new supply over the past several quarters, which has caused a deceleration in rent growth. Providence and New York had the lowest vacancy rates at 2.7% and 3% respectively.

Year-over-year rent growth was steady during the quarter at 0.3%. Many markets had negative rent growth, which CBRE said is expected to continue in the short term until excess supply is absorbed. Rent growth will then accelerate as occupancy trends higher, said CBRE.

With Class C rent growth outpacing both Class A and Class B assets, an increasing number of renters are opting for better-quality units, the report said. The Midwest logged the highest rent growth at 2.7%, followed by the Northeast with 2.3% and the Pacific with 0.2%. The Southeast, South Central and Mountain regions all had negative year-over-year rent growth during the third quarter.

Net absorption of 153,300 units was the second-highest Q3 total since 1985 when CBRE began tracking this metric. This was a 17% quarter-over-quarter increase and an 84% year-over-year increase. Rolling four-quarter net absorption of 426,881 units was 63% above the pre-pandemic average and nearly triple the 155,200-unit total a year ago

Sixty-seven of 69 markets tracked by CBRE had positive net absorption during the third quarter. They were led by New York with net absorption of 17,800 units, Washington, D.C. with 8,600 units and Houston with 8,500 units. Fort Lauderdale and Hartford were the only two markets with negative net absorption, said CBRE.

Quarterly demand exceeded new completions for the second consecutive quarter. Multifamily construction completions reached 124,300 during the quarter, which boosted the rolling four-quarter total by 24% year over year to a record 473,000 units.

Over the past four quarters, 19 of 20 top markets for new supply had slightly more completions than absorption. Only Washington, D.C., had absorptions exceeding completions, which drove its vacancy rate down and its rent average up.

Multifamily investment volume decreased by 16% quarter over quarter to $34.2 billion, although single-asset and portfolio investment volume was up 12% when excluding Blackstone’s $10 billion Q2 acquisition of AIR Communities. The multifamily sector accounted for the largest share of CRE investment activity during the third quarter at 36%.