The multifamily sector turned in one of its strongest three-month periods for demand in 25 years during the second quarter, with more than 116,000 units absorbed. Through the first half of the year, the multifamily market has absorbed 216,000 units, on par with last year's near record-setting pace, according to Cushman and Wakefield’s Q2 U.S. multifamily report.
The development pipeline continues to slow, with fewer than 500,000 units under construction across the country, the lowest level since 2016. For the second quarter in a row, net absorption outpaced new supply. New deliveries were up 18% from the first quarter to 115,000 units, but that was a decrease of 22% year-over-year.
Financing difficulties have contributed to a sharp drop in new starts, and muted construction activity is expected to persist, according to the report. Under-construction properties represent only 3.8% of inventory, less than half the 2023 peak, and only 11 markets saw any pipeline increase during the past year. Dallas/Fort Worth reported the largest drop in its pipeline, down 22,000 units, followed by New York and Austin, which were down about 18,000 units each. Phoenix, Atlanta, Houston and Washington, D.C., all dropped by more than 10,000 units.
In response to economic uncertainty and declining consumer sentiment, multifamily owners are increasingly focusing on occupancy over rent growth, said Cushman & Wakefield. The average occupancy rate has improved by 20 basis points year-to-date, but rent growth has slowed to 1.7% annually, a 50-bps deceleration for the first quarter of this year and the steepest pullback since 2023.
Vacancy remains 200 bps above the long-term average of 7%, but stabilized vacancy is 60 bps above its long-run average. During the second quarter, the market experienced sequential declines in the vacancy rate for the first time since 2021.
Although demand remains strong by historical standards, it showed signs of weakening when adjusted for seasonality, Cushman and Wakefield said. Demand was up by about half of the 30% increase normally recorded during the second quarter, which could signal that poor consumer sentiment is beginning to result in softer demand.
San Francisco led national rent growth at 6.8% year-over-year, while San Jose had 4.5% rent growth to place sixth in the country. Chicago also saw an increase of 4.5%, highlighting the strength of the Midwest market. New York and Northern New Jersey both logged rent growth of greater than 3.5%.
Gateway cities like New York, Chicago, Los Angeles, San Francisco and San Jose are demonstrating strong performance, with low vacancies and robust rent growth due to population influx and housing shortages. Sustained above-average rent growth is expected in these markets, according to Cushman & Wakefield.
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