Rent growth has slumped for the first time in a year. National year-over-year rates for apartments increased by 0.9% for the second quarter. Rent growth was 1.2% during the first quarter, and it has hovered between 1% and 1.2% since mid-2023, according to a CoStar Group analysis.
In dollar terms, the national rent rate per unit at the end of the second quarter was $1,773, compared with $1,763 at the end of the first quarter and $1,757 a year ago. Quarter-over-quarter, rents rose by 0.6%, slower than the prior quarter’s gain of 1.1%. The apartment vacancy rate remained steady at 8.2% for the third straight quarter, according to the report.
The apartment sector absorbed 151,440 units during the second quarter across the country, a 21% increase from the first quarter, but 9% below absorption during the second quarter of 2024, said the report. Supply additions increased 37% to 175,655 during the quarter, which was 11% below the supply additions recorded during the second quarter of 2024. Supply additions exceeded absorption, a trend that has persisted since the fourth quarter of 2021, but that may soon change as construction starts have been on a downward trend for two years and future deliveries are likely to slow, said CoStar.
Many of the top markets for rent growth are in the Northeast and Midwest, where modest supply additions better align with demand conditions. Gains were the strongest in San Francisco at 5.1% for the quarter, followed by Chicago at 3.8%, San Jose at 3%, while Cincinnati and Norfolk both averaged 2.8%.
Meanwhile, 15 markets had posted decreases compared with the second quarter of 2024, most of which were experiencing oversupply conditions that have yet to fully stabilize. All but one of those markets were in the Sun Belt region. Austin rents fell 4.3% over the past 12 months, while Denver's dropped by 3.3% and Phoenix's slipped by 2.6%.
Four- and five-star units led absorption, with roughly 115,000 units during the quarter, representing about three-quarters of all units absorbed. Most new supply is aimed at the luxury market, which caused annual asking rent growth to remain weak in the segment, finishing June up 0.5% year-over-year with a vacancy rate of 11.5%.
Mid-priced assets benefited from rising demand for three-star properties, where vacancy was 7.5% and annual rent growth was 1.1% at the end of the second quarter, according to the report.
Approximately 485,000 new units are expected to be delivered in the multifamily market this year, representing a 30% decrease from the 2019 total.
“As the post-pandemic supply wave recedes, balance will likely return to the market,” said CoStar. “However, market conditions could vary widely among markets and quality segments,” said the report.
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