The national vacancy rate for multifamily properties was 4.9% at the end of last year, up 10 basis points (bps) from the third quarter and 30 bps year over year, according to Reis’s Apartment First Glance report for the fourth quarter of 2018.

Vacancies have been rising steadily since their most recent low of 4.1%, in the third quarter of 2016, but remain below the 5.4% long-term average. Rents are rising at a slower pace relative to 2015, and concessions have risen, particularly in high-supply markets.

According to the latest figures, over 244,000 new units came on line in Reis’s top 82 markets in 2018, slightly fewer than in 2017. In some markets, including New York, deliveries slowed slightly in 2018 after hitting an all-time high in 2017. Over 13,000 new units came on line in New York in 2017, while vacancies hit a new high, of 5.1%. By contrast, “only” 10,000 new units were delivered in 2018, and vacancies fell 30 bps, to 4.8%.

Asking and effective rents both rose by 0.8% in Q4 2018, reaching 4.9% and 4.7%, respectively. This is approximately 10 bps down from the peak rent growth in 2015, when asking and effective rents grew 5.8%, and a slight increase over 2017.

“These rent growths do include the attempt of newly built properties to charge a premium over their peers, boasting newer fixtures and better amenities. New apartments are leasing up more slowly relative to 2014,” Victor Calanog, chief economist and senior vice president of Reis, says in his analysis. “Concessions now have to be offered to entice renters, chipping away at effective-rent growth [asking rents net of concessions].”

Locally, markets with the highest net absorption also experienced some of the highest job growth in 2018. Houston; Dallas; Denver; Seattle; Orlando, Fla.; Austin, Texas; and Phoenix all saw job growth of 2.7% or more over the course of the year.

Twenty-five metros saw effective-rent increases of 1.0% or more in the fourth quarter, led by Philadelphia; Albuquerque; Charlotte, N.C.; Phoenix; and Atlanta, with effective-rent growth between 1.8% and 2.3%. Over the course of the year, Phoenix, Las Vegas, Atlanta, Denver, and Charleston, S.C., posted the highest effective-rent growths, ranging from 6.8% to 8.4%.

Despite elevated apartment construction and rising vacancies, Calanog notes that demand remains strong, owing to job growth and a weaker housing market. Existing-home sales are down 7% from one year ago, and the doubling of the standard tax deduction last year reduced home buying incentives.

Construction is expected to remain strong in 2019 but drop into 2020, and occupancy is expected to remain strong despite rising vacancies. In some markets, developers may extend the cycle due to strong apartment demand, especially in New York and suburban Virginia, owing to the construction of Amazon’s new headquarters in those two locations over the next decade.

“Our outlook remains favorable given the current conditions of positive job growth and tepid housing sales,” says Calanog. “The recent momentum should keep rent growth positive even as vacancy rates edge up a bit in the next few quarters.”