For 2023, RealPage reports that apartment demand is rebounding in response to rent growth’s rapid cooling. After a decline in 2022, occupancy rates stabilized in Q2 of this year as net absorption came in just shy of surging new supply levels.
“Apartment demand appears to be normalizing as expected so far this year,” says Jay Parsons, RealPage chief economist. “That’s good news, but it’s still not enough to keep pace with new supply – and likely won’t be as completions peak later this year and well into 2024.”
According to RealPage data, net demand registered at 83,449 units in Q2, which marked a five-quarter high but was well below the record numbers seen during the 2021 boom.
Led by Houston; Phoenix; Dallas/Fort Worth; Charlotte, North Carolina; Nashville, Tennessee; and Austin, Texas, more than three quarters of net new demand has gone to the Sun Belt or Mountain regions for the first half of the year. Chicago, Washington, D.C., and northern New Jersey were also in high demand.
The 50-year high in apartment construction is now beginning to convert into completions with more than 107,000 apartment units completed in Q2. RealPage is tracking more than 1 million additional units under construction at the end of June with completions expected to remain elevated through 2024 before easing in 2025.
“Demand continues to go where supply is going, which is normal,” says Carl Whitaker, RealPage senior director for research and analysis. “Demand may not stay in lockstep with supply in the short term, but in the longer term, there’s still a need for more housing.”
For the first half of 2023, demand has alleviated the supply-fueled vacancy spikes in most markets. U.S. apartments came in at 94.7% as of June, according to RealPage. Nearly all major markets cited occupancy rates around or above 93% in June with the only exceptions being Memphis, Tennessee (92.1%) and San Antonio (92.2%),
Remaining well below normal in 2023, asking rents continue to grow at quiet levels. Same-store effective asking rents rose just 0.46% between May and June 2023—the smallest increase for any June in the last decade aside from the lockdown period of June 2020, RealPage notes.
“Apartment operators continue to prioritize occupancy rates over rents,” Parsons says. “Occupancy came easy back in 2021 because there was so much more demand than supply. The tables have turned. And now supply is doing exactly what it’s supposed to do—giving renters more options and putting downward pressure on rent growth.”
Effective asking rent growth came in at 1.5% year over year, the lowest since early 2021. For later this summer, year-over-year rent change is now on pace to flatten or even turn slightly negative. Reaching 35 of the 150 largest markets, the number of individual metro areas with year-over-year rent cuts continued to grow in June.
Boise, Idaho posted the highest year-over-year cut in effective asking rents at -6.2%. Phoenix and Las Vegas followed at -4.7% and -4% respectively. Vallejo/Fairfield/Napa, California; Fort Walton Beach, Florida; and Reno, Nevada, all cut rents between 3 to 4%.
“Aside from some of the West Coast, demand isn’t the issue in most of the markets cutting rents,” Parsons says. “There’s a lot of demand for apartments this summer, but it’s just not enough to keep pace with supply in the short term. New construction creates more options and therefore more favorable pricing for renters.”
In contrast, rent growth remains stronger across the Midwest and most of the Northeast, including college towns across the U.S. The largest rent increases from 6% to 10% were located in college hubs like Madison, Wisconsin; Champaign-Urbana, Illinois; Knoxville, Tennessee; College Station, Texas; and Fayetteville, Arkansas.
“College town dynamics are very different from most major metro areas,” Whitaker adds. “In most college towns, construction slowed down in 2020 and 2021 as many campuses closed during the pandemic. Now, students are back on campus at the same time new supply is very limited.”
Among the largest 50 markets, only 15 recorded rent growth north of 3%, led by northern New Jersey and Cincinnati both at 6% and Indianapolis at 4.8%.