Apartment Supply and Demand Gap Narrows to Three-Year Low

Article originally posted on Globe St. on October 11, 2024

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.

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