NEW YORK, NY - Cushman & Wakefield released its national fourth quarter data showing robust demand in 2023 across nearly all markets nationally. Of the 90 markets tracked by Cushman & Wakefield, 86 posted positive absorption for the year.
New York (17,900 units absorbed), Washington, D.C. (12,700) and Dallas-Fort Worth (12,500) led the country’s net apartment demand, followed by the Sunbelt stalwarts of Houston, Phoenix and Austin. On a percentage basis, no market saw more demand than Huntsville, Alabama, which absorbed 2.2% of its inventory, followed by Colorado Springs (1.7%) and Boise (1.6%).
“This past year should largely be considered the first “normal” year since the outset of the pandemic. Demand for full year 2023 came in at about 260,000 units, right in line with the 2017-2019 average. A dislocated single-family market clearly drove some of the growth in demand, as renters were substantially less likely to leave a rental to buy a home with mortgage rates hovering above 7% for most of the year,” said Sam Tenenbaum, Head of Multifamily Insights.
Seasonal patterns once again reemerging in 2023, with demand following the traditional curve: peaking in the spring and summer and waning through the fall and winter. However, net absorption was resoundingly strong in the fourth quarter, registering roughly 60,000 units absorbed – roughly 60% higher than the Q4 averages from 2015-2019.
Despite the good news on the demand side, occupancies continued to falter in 2023, thanks to more than 440,000 units delivering. Overall occupancies dipped below 92% at the end of the year, lower than at the peak of the Great Financial Crisis. This marks the ninth straight quarter of occupancy declines, though it’s worth noting that the pace of declines has slowed. In 2023, each quarter saw about a 30-basis-point (bps) decline in occupancy, compared to about 45 bps in 2022.
“Most of the recent vacancy increase is a result of new properties coming to market. The stabilized vacancy rate, which is comprised of properties that have exited the lease-up phase, is just above 6%, 200 bps below the overall national vacancy rate,” added Tenenbaum. “Properties newly delivered to the market often take 12-18 months or longer to lease up, owing to construction schedules and managing lease expiration risk, so it’s to be expected that the divergence between the aggregate and stabilized series is widening.”
With retreating occupancies, the balance of power has firmly tilted towards renters. Rent growth over the past year averaged just 1.6%, the weakest reading since the initial onset of the pandemic. It continues a string of below-average growth levels for market participants as new construction weighs on the competitive landscape. While rents didn’t decline, the construction pipeline of roughly 800,000 units, or 6.5% of inventory, will continue to offer plenty of options for prospective residents to choose from.