2023 saw a 36-year high in apartment supply as construction projects that started when occupancy rates and rent growth were at record highs came online. However, as these projects were completed, the leasing environment had shifted.
According to RealPage, nearly 440,000 multifamily units were completed last year, with even more—671,000 units—scheduled to deliver in 2024. However, completions are expected to dramatically decline after this year due to the recent slowdown in starts attributed to higher financing costs and softer fundamentals.
“High supply is great news for renters and a hurdle for investors,” said RealPage chief economist Jay Parsons. “Renters suddenly have far more options than they’ve had in recent years, and that’s putting downward pressure on rent growth.”
Rents flattened last year, inching up 0.3%, but apartment demand rebounded after a sluggish 2022. The fourth quarter, which typically is a seasonally slow leasing period, was a surprise bright spot, according to RealPage.
“Net absorption totaled 58,200 units, meaning there were 58,200 more occupied apartments than in the previous quarter,” noted RealPage. “That was the third-strongest fourth quarter in 25 years, topped only by 2020 and 2021—and by a wide margin.”
For 2023, net absorption came in at 234,000 units, one-third of the record high set in 2021 but more similar to pre-pandemic norms. However, even with such strong demand, it couldn’t keep up to the supply surge. Occupancy dropped 80 basis points year over year to 94.1%, although still within the long-term normal range.
According to RealPage, rent growth levels are no longer decelerating. Year-over-year growth peaked at 15.7% in March 2022 and declined until it hit 0.3% in August, holding around that mark for five consecutive months.
Rent changes vary by market, with a clear link to new supply coming online. Rents fell across 40% of metro areas, with nearly all of them—primarily in the Sun Belt, Mountain, or West Coast regions—seeing significant new supply. One-third of metro areas—almost all in the Midwest or Northeast—saw rent growth of 3% more last year, with nearly all of them having limited supply to work through.
“It’s all about supply,” said Parsons. “Apartment construction is at generational highs. It’s not a demand issue. Rents are falling in the markets with the strongest demand because those are the markets seeing multidecade highs in new supply.”
As is typical, according to RealPage, the Sun Belt and Mountain regions added the most supply in 2023. The regions combined added 62% of the new supply while claiming 70% of the national apartment demand pie. The supply/demand shares in the Northeast and Midwest were more balanced.
However, the West Coast only saw 10% of the nation’s new apartments come online with only 4% of the net new demand. Seattle was the only West Coast market ranked in the top 35 nationally for apartment demand.
Of the 12 metro areas to add at least 7,000 net new apartment households last year, all but two were in the Sun Belt or Mountain regions—Washington, D.C., coming in at fifth, and Minneapolis, 10th. Dallas/Fort Worth, Houston, Phoenix, and Austin, Texas, led the list of metros, with Charlotte, North Carolina; Atlanta; Nashville, Tennessee; Raleigh/Durham, North Carolina; Denver; and Orlando, Florida, also making the top 12.
The 12 markets also ranked among the nation’s top 15 for new supply, along with Northern New Jersey, Los Angeles, and New York. However, those three markets ranked lower when measuring supply by expansion rate, with all three having large existing apartment stocks.
“The markets that saw the most new supply in 2023 are generally the markets that will see the most supply in 2024, too,” said Carl Whitaker, senior director for research and analysis. “That’s creating a very competitive lease-up environment for developers. And in these ultra-high supply areas, we’re seeing the impact to rents even in the Class B and Class C space.”
The South and West Coast were home to most of the nation’s rent cuts last year. Florida had six of the 10 largest cuts. Fort Myers/Cape Coral had the deepest decline at -7.9%, with change measured on a same-store basis and inclusive of concessions. Other Florida markets cutting rents at least 4% included Sarasota/Bradenton, Daytona Beach, Jacksonville, Orlando, and Palm Bay. Rents also fell 4% to 6% in Austin; Boise, Idaho; Atlanta; and Phoenix.
For the West Coast, Portland, Oregon, saw the deepest rent cut at -3.2%, with rents falling moderately in most other large metros. Only California’s Orange County and San Diego saw effective rents increase last year.
Of the nation’s 150 largest metros, 41 saw rent increases of at least 3% last year. Of those 41, all but seven had supply expansion rates below the national average. Most of this growth was in the low-supply Midwest and Northeast. Of the 50 largest markets in the two regions, only two saw rent cuts last year.
Midland/Odessa, Texas, topped the list with a 9.7% increase in 2023. Seven others saw growth above 5%, including Springfield, Massachusetts; Rochester, New York; Fargo, North Dakota; Madison, Wisconsin; Buffalo, New York; Lexington, Kentucky; and Lincoln, Nebraska.
