The multifamily market continues to show signs of recovery. According to CBRE’s latest research, in the third quarter, the nation’s vacancy rate fell for the first time in over two years and renter demand outpaced the high level of new supply deliveries.
In the third quarter, the vacancy rate dropped 0.2% from the prior quarter to 5.3% and is expected to return to its long-run average of 5% in coming quarters.
Positive net absorption of 153,300 units was the second highest third quarter total since CBRE began tracking the market in 1985. It also was 72% above the pre-pandemic third quarter average.
A record 473,000 units have been delivered over the past four quarters, with 124,300 completed units in the third quarter. Approximately 661,000 units, comprising 3.6% of total existing inventory of the markets CBRE tracks, were under construction as of the third quarter. This is down from a peak of 760,400 units under construction in the first quarter. Construction starts have slowed in recent quarters with an expectation of easing supply pressure in coming years.
According to CBRE, quarterly demand surpassed new completions for the second consecutive quarter, which will further shrink the gap between completions and demand on a year-over-year basis.
Average monthly rents reached $2,203, up 0.3% compared with 2023’s third quarter. Quarter over quarter, average monthly rents increased by 0.6%. CBRE anticipates rent growth to accelerate as construction completions slow and positive net absorption continues.
“The first drop in vacant units in more than two years is a crucial turning point in the multifamily sector,” said Kelli Carhart, leader of multifamily capital markets for CBRE. “This boost will lead to increased investment activity in 2025 as improving fundamentals continue to drive investor confidence capital deployment.”
Other highlights for the third quarter include:
- 67 of the 69 markets tracked by CBRE saw positive net absorption, led by New York; Washington, D.C.; and Houston. Fort Lauderdale, Florida, and Hartford, Connecticut, were the two markets with negative net absorption;
- The average vacancy rate fell by 20 basis points for all three asset classes: Class A, 5.6%; Class B, 5.2%; and Class C, 5.3%;
- 50 markets experienced quarter-over-quarter decreases in their vacancy rates, up from 45 in the second quarter. Providence, Rhode Island, and New York had the lowest vacancy rates at 2.7% and 3%, respectively;
- The top five markets for construction completions over the past four quarters were New York; Texas’ Austin, Dallas, and Houston; and Atlanta, accounting for 30% of the national total;
- The Northeast, Midwest, and Pacific regions recorded positive year-over-year rent growth. The Midwest led with 2.7% growth, followed by the Northeast, 2.3%, and the Pacific region, 0.2%.
- Richmond, Virginia, had the biggest jump in quarter-over-quarter rent growth, while Austin; Jacksonville, Florida; and Raleigh, North Carolina, had the most negative rent growth;
- Quarter over quarter, multifamily investment volume decreased by 16% to $34.2 billion. However, excluding Blackstone’s $10 billion transaction to take AIR Communities private in the second quarter, single-asset and portfolio investment volume was up by 12%;
- Los Angeles was the top market for rolling four-quarter investment volume with $8.8 billion, followed by New York with $7.5 billion and Dallas-Fort Worth with $7.2 billion; and
- Most Sun Belt markets in the top 20—including Dallas, South Florida, Atlanta, Houston, San Diego, and Austin—saw quarter-over-quarter decreases in rolling four-quarter investment volume. Phoenix and Charlotte, North Carolina, were the only two to see increased volume.
