An in-depth report of multifamily rent trends for the first quarter of 2024, released by Apartments.com, has highlighted that the U.S. multifamily market staged a strong rebound in demand during the first quarter of 2024, as 104,400 were rented out, the highest number since the third quarter of 2021.
While this increase may be impressive, it was overlooked by the 140,000 new rental units delivered in the last quarter. This supply-demand imbalance increased the vacancy rate from an upwardly revised 7.7% at the end of December 2023 to 7.8% in March 2024, marking the tenth consecutive quarter in which supply outpaced demand.
However, the ten-basis-point rise in vacancies is the smallest seen over the past ten quarters.
Since mid-2023, annual rent growth has been hovering around 1% after the rapid decline experienced in 2021 and 2022. Currently, the national average annual asking rent price rose by 0.7% in March compared to the 0.8% in January and February.
According to Apartments.com, the Midwest and Northeast markets have avoided oversupply conditions and maintained solid rent growth over the year at 2.2% and 1.3%, respectively. Markets in the West closely matched the nation as weak demand mixed with limited completions have kept rent growth restrained but positive. Still, continued oversupply conditions in the South have kept rent growth in negative territory.
At 3.4%, Louisville ended the first quarter with the strongest annual asking rent growth of the top-50 markets nationwide, with Northern New Jersey and Cleveland close behind. The top-10 best-performing markets for yearly rent growth are all in the Midwest or the Northeast.
At the opposite end of the scale, rents fell by 5.7% over the past 12 months in Austin. Jacksonville, Raleigh, Atlanta, and San Antonio were not far behind, with annual rent losses ranging from 3.6% to 3.0%. With supply-demand imbalances still challenging, nine of the bottom ten performing markets are in the South.
Rentals were led by 4 and 5-star units, numbering some 88,000 units during the first quarter.
But with most new supply aimed at the luxury market, annual asking rent growth remained negative in that segment and finished March at -0.3%. This decline contrasts with mid-priced assets that benefited from rising demand for 3-Star properties, where net absorption increased from 10,000 units in the fourth quarter of 2023 to 27,000 units in the first quarter of 2024, helping keep rent growth positive at 1.3%. Improving consumer confidence, lower inflation, and sustained economic expansion all helped boost 3-Star demand.
Demand for 1&2-Star properties remain the weakest of all market segments, with two and a half years of negative absorption. Households at this price point struggle with higher housing costs and the elevated costs of everyday items, pushing some to seek alternative housing solutions such as moving in with roommates or returning to the family home.
For the record, completions of new multifamily units reached a 40-year high in 2023. The 2024 calendar year may offer the multifamily market a chance for a cooldown lap affording it some more breathing room. This year, the market is expected to add 495,000 units, a 20% pullback year-over-year. However, property operations going into 2024 could vary widely depending on the market and the price point. Markets in the South and luxury properties remain most at risk for weakness throughout 2024 due to oversupply conditions, while Midwest and Northeast locations and mid-priced 3-star properties could outperform.
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