The final installment of the ongoing series looking back at various facets of multifamily demand last year is average occupancy. As already discussed, improved apartment demand in 2024 was insufficient to offset generational new supply. This ongoing imbalance was a headwind to rent growth – although it too showed improvement from 2023. The mechanism by which the supply and demand relationship slowed rent growth was average occupancy.

All numbers will refer to conventional properties of at least fifty units. Complimentary market-specific information is available when you sign up to receive any ALN Market Review report.

National Average Occupancy

National overall average occupancy ended 2024 at just under 88%. This metric includes lease-up properties and provides a clear picture of the impact of new supply. Overall average occupancy finished 2024 at its lowest point in years. In markets for which ALN has data from the Great Recession period, the national average is challenging the low water mark from that era.

There was not much difference in the group averages between primary, secondary, tertiary, and micro markets. This was largely due to a similar degree of new supply pressure once the number of new deliveries for each market tier was adjusted by the corresponding multifamily stock.

Because new supply is the main driver of the overall occupancy metric, price class averages were quite disparate. The Class A tier saw the greatest share of new supply and finished the year with average occupancy at approximately 79%. Without the same pressure from the construction pipeline, the Class C and Class D tiers each closed the year at around 90%.

National Stabilized Average Occupancy

Occupancy trends among just stabilized properties provide some additional context. Whereas the overall average occupancy is heavily influenced by new supply volume, the stabilized average is largely driven by apartment demand. Of course, lease-up properties and stabilized properties compete for the same finite pool of renters. In times of high supply, stabilized demand is impacted.

National average occupancy for stabilized properties finished the year at about 93%. This was well below the 2021 peak of 96%, but by a smaller margin than the overall average occupancy. One major point of difference between the two metrics last year was that new supply kept downward pressure on the overall average while the resurgence in apartment demand was enough to achieve a small annual gain for the stabilized average. The improvement was modest, only 0.4%, but it was an encouraging sign for 2025.

Price class differences are worth mentioning here as well. For the top three price tiers, stabilized occupancy to end 2024 was short of the pre-pandemic average by one hundred basis points or less. The winnowing of this shortfall occurred as net absorption turned from negative to positive over the last couple of years.

For Class D, the demand struggles have continued. Net absorption improved last year compared to 2023. However, not enough to prevent a net loss of leased units for a third straight year. Stabilized average occupancy finished at 92% – around two hundred basis points lower than the pre-pandemic average.

Market Occupancy Notes

Nearly 30% of markets around the country managed an overall average occupancy gain last year. Most were smaller markets with relatively little new supply. However, there were some larger areas that turned the corner last year. A 1.1% gain in Detroit made it the only primary market to add at least 1% to the average. Other larger markets like Los Angeles, Las Vegas, Pittsburgh, Boston, and Salt Lake City gained 0.5% or more at the average.

Of the more than two-thirds of markets to suffer another annual decline in overall average occupancy, the Sunbelt region stood out. Having been at the tip of the spear for new supply in recent years, this was no surprise. Twenty of the twenty-five markets with the largest annual slides were in the Sunbelt.

Roughly 60% of markets around the country saw stabilized average occupancy rise last year. Once again, most of the leaders were smaller markets. There were some large markets to achieve sizable gains, however. For example, New York (2.4%), Miami (1.7%), Las Vegas (1.5%), and San Fracisco – Oakland (1.5%).

Many of the areas with the largest annual declines were smaller Sunbelt and Mountain West markets where new supply pressured stabilized demand. However, stabilized average occupancy finished 2024 at 93% among the twenty-five markets with the largest annual declines. This was right at the national stabilized average. These areas tended to be high-occupancy markets that needed some new supply.

Takeaways

National average occupancy has fallen precipitously from its 2021 peak. Overall average occupancy has suffered three consecutive years of decline as inconsistent apartment demand was met with generational new supply. The stabilized average managed to regain positive territory last year after two years of annual decline in 2022 and 2023.

With apartment demand on a multi-year upswing and with new supply expected to decrease moderately this year, the average occupancy picture may well improve again in 2025. Further progress for Class D apartment demand specifically would help bring that to fruition. Regardless, it appears to worst is likely in the rearview mirror for occupancy performance in this development cycle.

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