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Multifamily demand hit a record in the first quarter, according to the latest data from Marcus & Millichap. The number of occupied apartments nationwide rose by nearly 104,000 units in the first three months of the year, marking the strongest first quarter net absorption on record.

Historically, for the first quarter over the past three decades, approximately 12,500 units had been absorbed on average.

“This abnormally robust start to 2024, with traditionally strong spring and summer months still to come, should put net absorption on track to reach a three-year high, barring any unexpected setbacks,” noted Marcus & Millichap.

Other factors also indicate multifamily’s ongoing improvement:

  • The average amount of time an apartment sat vacant in April dropped to 28 days, an eight-month low and a drop from December’s 34 days;
  • New lease applications per unit increased to an eight-month high in April; and
  • The rate of signed renewals reached the strongest measure since August.

However, Marcus & Millichap said the influx of new supply will curb the progress seen on vacancy and rents. More than 135,000 multifamily units were completed in the first quarter, the largest quarterly figure on record. The strong demand wasn’t able to keep pace, with vacancy rising 10 basis points to 5.9% in the first quarter.

Eight major markets—Atlanta; Austin, Texas; Charlotte, North Carolina; Dallas-Fort Worth; Houston; New York City; Orlando, Florida; and Phoenix—comprised over one-third of the nation’s completions for the quarter. According to Marcus & Millichap, these markets accounted for a higher share of overall net absorption, demonstrating a relative alignment between development and demand.

Nine major markets saw inventory growth of over 4% during the 12 months ending in March. Austin; Charlotte; Nashville, Tennessee; Raleigh, North Carolina; and Salt Lake City topped the list with expansion of at least 6.5%. The new openings are having an impact on fundamentals in these markets, with each seeing a year-over-year vacancy jump of 60-plus basis points and an average effective rent decrease at or beyond 1.5%.

During the 12-month period, 11 major markets saw annual inventory growth of 1% or lower. Many of these markets have seen vacancy lifts and year-over-year rent gains.

An additional 1 million-plus units were underway across the nation in April. Looking beyond this year, the construction pipeline is smaller but remains sizable for 2025 and 2026, noted Marcus & Millichap.

Concessions also accelerated in construction-heavy markets. In March, the share of apartments offering concessions increased to a 35-month high of 13.6%. The percentage of Class A units with concessions was the highest among the multifamily segments in the first quarter. However, the rate at Class C units increased the most year over year.

According to Marcus & Millichap, San Antonio and Jacksonville, Florida, had the highest vacancy rates as well as the largest share of apartments offering concessions in the first quarter. California’s Orange County and Milwaukee had the lowest vacancy and smallest share of units with concessions.

Preliminary data for January to March found that multifamily transactions fell for the third straight quarter. Deals are hard to pencil in an environment of elevated debt costs and the absence of rate cuts from the Federal Reserve. The average per-unit sales price dropped to approximately $197,000 in the 12 months ending in March, down 4% from 2022’s peak but over 20% above the trailing-decade mean. The average cap rate increased to 5.7%, the highest recording since 2014, noted Marcus & Millichap.