For the data behind the commentary, download the full Q3 2024 U.S. Multifamily Report.
Stellar Demand Keeps Vacancy Flat in the Third Quarter
At the start of this year, the demand side of the equation had its work cut out for it, given the supply boom that was well underway. This year, more than 400,000 units were delivered—the highest of any three-quarter period since 2000. Thus far, rental demand has been able to keep pace, with net absorption reaching over 360,000 units year-to-date (YTD), a 44% increase from 2023’s full-year total. This marks the first time since 2020—and only the second time since 2012—that demand improved from the second to the third quarter. As a result, vacancy has remained largely stable at 8.7%, up just 20 basis points (bps) since the end of last year. Stabilized vacancy, which excludes newer assets that haven’t had time to lease up, declined by about 10 bps during that same period. If demand growth remains robust and the construction financing market remains challenged, the market may have reached peak vacancy for the cycle.
In about half of the 90 markets tracked by Cushman & Wakefield Research, net absorption is up more than 2.5% YTD compared to last year. Huntsville, AL leads with 9.2% growth in occupied units, followed by Colorado Springs, CO (6.3%), Nashville, TN (6%) and Austin, TX (5.9%). These markets also lead in new deliveries this year—only Nashville falls outside the top five, ranking seventh—showing strong lease-up momentum. The demand is much needed, as Huntsville, Austin and Colorado Springs are among the top five U.S. markets with the highest vacancies, though stabilized vacancies in these markets are generally much lower.
Rent Growth Continues To Improve
Nationally, rent growth improved to 2% YOY in the third quarter, the highest since the first quarter of 2023 when rent growth hit 4%. There is still a way to go for the market to resume a “normal” rent growth trajectory—the YOY rate is about half the 2010-2019 average of just over 4%—but it’s a welcome sign given the weaker rent growth observed over the past 12-18 months. At Cushman & Wakefield, we’ve seen improving lease trade-outs across more than 180,000 units that we manage across the U.S., and it is encouraging to see the broader market catch up to a trend we identified six months ago.
National rent trends have been skewed by the high-profile pullbacks in some pandemic hotspots. Austin, TX, Raleigh, NC, and Phoenix, AZ continue to experience rent corrections (though the pace of declines is moderating), and rent growth in markets like Atlanta, GA, Dallas/Fort Worth, TX , and Central Florida (Tampa and Orlando) has moved sideways. But in most markets, rents are rising. More than half of the tracked markets had rent growth above 3%, and 26 markets posted rent growth of more than 4%. Six markets also posted rent growth above 5%, led by Buffalo, NY (6.7% YOY), followed by Hartford, CT (5.9%), Tulsa, OK (5.4%), Louisville, KY (5.3%), Northern NJ (5.2%) and Richmond, VA (5.1%).
Construction Levels Are Plummeting
Declining values, relatively weak (although improving) fundamentals, and high interest rates continue to vex developers and keep new construction starts at bay. As projects deliver, the overall construction pipeline continues to recede, down to just 609,000 units underway today. That’s the lowest figure since the onset of the pandemic and is now in line with 2019 levels. The pipeline ballooned to over 950,000 units at the beginning of 2023, but with just 165,000 units starting in 2024, it will continue to dwindle over the next 18-24 months.
The largest pipeline contraction occurred in the three largest Texas markets. Austin, a market of extremes, saw its pipeline recede by more than 25,000 YOY, followed by Dallas/Fort Worth (22,000) and Houston (16,000). Just seven markets saw their pipelines expand by more than 100 units in the third quarter, led by Omaha, NE (1,200), Miami, FL (660), and New Orleans, LA (510).
For the data behind the commentary, download the full Q3 2024 U.S. Multifamily Report.
