Both apartment demand and rent performance have improved some in recent months along the typical seasonal schedule. With 2024 set to be another very active year for multifamily deliveries, robust improvement in net absorption is key to mitigate further occupancy losses. Demand improved month-over-month in May, but not to an extent that would indicate a coming rebound back to the longer-term average after down years in 2022 and 2023.

All numbers will refer to conventional properties of at least 50 units.

Higher Absorption, but Barely

A little more than 25,000 net units were absorbed nationally in May. This was roughly 2,000 units higher than in April and represented the monthly high-water mark so far for 2024. However, monthly net absorption has finished within a very narrow range between 23,000 and 26,000 units for three consecutive months now rather than continuing to gain momentum from spring into summer. In each year from 2018 through 2023, with the exception of 2020, monthly national net absorption was highest in May. National net absorption so far this year has totaled approximately 98,000 units – well below the 241,000 new units delivered. If it turns out that May represented the peak of monthly demand in 2024, it will be a long back half of the year.

One encouraging aspect of the May data was that demand in the workforce housing segments continued to make progress. Class C net absorption of just more than 11,000 units was the best monthly total so far this year. Net absorption of 4,000 units for Class D properties was also the best monthly result so far in 2024. Both price tiers have absorbed around 17,000 more units through May than in the same portion of last year. For Class C, that difference meant that absorption so far this year has doubled last year’s. For Class D, net absorption last year through May was still negative.

Net absorption for Class A and Class B was higher in May than in April, but each price tier had a better month in the first quarter. More than that, year-to-date absorption has been roughly equal to last year rather than being able to capture gains as with the workforce segments.

New Supply Outpacing Last Year

Despite considerable improvement in net absorption year-over-year, the gap between new units delivered and net absorbed units has grown. More than 240,000 new units have been introduced this year through May after last year’s total of around 197,000 units in the same period. That increase was enough to offset the improvement in demand.

Deliveries this year have already exceeded 10,000 units in five markets. Of those, the largest deficit in net absorption relative to the new units was in Dallas – Fort Worth. The market has added nearly 17,000 new units while absorbing only about 5,000 net units. Other especially-active markets were Denver – Colorado Springs, Atlanta, New York, and Austin. Including Dallas – Fort Worth, these five markets accounted for 25% of new units delivered through May.

Of the top twenty-five markets for year-to-date new supply, only Los Angeles – Orange County and San Francisco – Oakland have absorbed more units that have been delivered. This feat was managed because both markets were in the top ten for net absorption in the period, but outside the top twenty in new units added. Net absorption has outpaced new supply so far this year in only approximately one-third of markets around the country. Removing markets that have had less than one hundred new units added brings that percentage to just 16% of markets.

Takeaways

This year continues to present something of a mixed bag for multifamily. There have been reasons for optimism. For one, apartment demand in Class C and Class D properties has shown consistent improvement. For another, overall net absorption this year has been 60% higher than in the same period last year.

However, the monthly data still presents a challenge. Progress has largely stalled with monthly net absorption failing to cross the 30,000-unit mark. The heady month-over-month improvement in the first quarter has not carried over into the second quarter. Time remains in the coming months, but it looks increasingly likely that 2024 will ultimately resemble 2023. Net absorption may well finish higher, but so too will new supply. That dynamic could drive occupancy and rent performance along last year’s lines.

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