One theme of 2024 multifamily performance was that improvement was achieved but with further ground to gain. One metric that typified this theme was rent growth. After a dismal year in 2023, average effective rent growth for new leases took a major step in the right direction last year.

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National Rent Performance

After historic gains in 2021 and 2022, national rent growth fell to a paltry 1.1% for new leases in 2023. In recent years, only the 2020 gain of 0.5% was smaller. The lackluster result was largely due to a prolonged average occupancy slide thanks to a combination of unusually high supply and unusually low demand. In 2024, the supply and demand relationship remained out of balance, but a resurgence in net absorption helped to close the gap.

2024 rent growth more than doubled the 2023 total with the average effective rent for new leases gaining just under 3%. The gain was a welcome step in the right direction but also left some room for further improvement. In the years immediately preceding the pandemic, annual rent growth averaged more than 4%.

Rather than being concentrated in one subset of the multifamily sector, rent growth improvement occurred nearly across the board last year. For properties that entered the year already stabilized, an average effective rent gain of almost 2% more than tripled the 2023 mark. From a price class perspective, the top three tiers managed robust year-over-year progress. Only Class D suffered a step backward – with average rent essentially unchanged during last year.

With the possibility of further tightening between new supply and net absorption this year, national rent growth has a good chance to break through the 3% gain threshold in 2025 for the first time since 2022.

Rent Performance at the Market Level

The number of markets around the country to suffer negative annual average effective rent growth fell from twenty-eight in 2023 to just nine in 2024. All nine were high-supply Sunbelt or Mountain West markets. A 4.4% decline in Austin was the largest in the country.

Market leaders in rent growth last year tended to manage the achievement due more to a lack of new supply than to above-average apartment demand. In fact, of the top fifteen markets nationally in rent growth last year – only Tallahassee, South Bend, and Milwaukee had above-average demand.

The top five markets for rent growth last year were all smaller markets, but the primary markets with the strongest rent growth also exhibited the same dynamic. National primary market leaders were Chicago (6%), Cleveland – Akron (6%), Columbus (6%), Kansas City (5%), and Detroit (5%). Of those, only Columbus had new supply above the size-adjusted national market average last year.

The sheer scale of multifamily deliveries in recent years has meant that many markets with the most robust apartment demand have not been able to leverage that demand into vigorous rent growth. This could be one area where notable change occurs in 2025 even if the national average effective rent gain is not dramatically different.

Many Sunbelt markets are now on the other side of a deliveries peak. The consistently solid demand in those markets could begin to better translate into rent gains moving forward. On the other hand, there are markets that have not been at the forefront of new supply in recent years that are set to ramp up deliveries in 2025. After capturing rent growth without vigorous demand thanks to a relative lack of new supply, they may find rent growth harder to come by this year.

Takeaways

Multifamily rent performance improved substantially in 2024. National average effective rent growth for new leases more than doubled the mark from 2023, and progress was made across a variety of market segments. At the market level, the number of markets to suffer negative rent growth last year fell considerably compared to 2023.

An imbalance between new supply and net absorption has been a major headwind to rent growth over the last couple of years. With deliveries expected to decrease somewhat this year, and with apartment demand in an ongoing multi-year growth trend, there is reason for optimism as 2025 unfolds. However, the make-up of market leaders for 2025 rent growth may look quite a bit different than last year.

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