Key facts
- U.S. apartment demand saw its strongest quarter in nearly two years, with 124,600 net new units filled in Q2.
- The national apartment vacancy rate fell below 9%, the lowest in two years.
- New apartment construction slowed significantly, with only 88,000 units completed in Q2, down 27% year-over-year.
- The share of existing apartment stock under construction is at its lowest point since 2013.
- Year-over-year rent growth accelerated to 1.5%, with Class A rents rising and Class C rents declining.
The U.S. apartment market experienced its most robust quarter in nearly two years during Q2, driven by strong renter demand that outpaced a significantly reduced construction pipeline, according to Cushman & Wakefield. Renters filled 124,600 more units than they vacated, marking the fifth-busiest leasing period in almost 25 years and a notable 8% increase from the previous year. This surge in demand pushed the national apartment vacancy rate below 9% for the first time in two years.
Developers faced headwinds from high interest rates and construction costs, which peaked in 2022. Consequently, only 88,000 new apartments were completed in Q2, a 27% decrease from the prior year and the slowest second quarter since 2022. The current construction pipeline represents just 3.5% of the existing apartment stock, half of its 2023 peak and the lowest level since 2013. The Architecture Billing Index further indicates a prolonged downturn in new ground-up apartment projects.
Despite economic challenges like weak job growth and reduced immigration, the tight supply environment has led to a modest acceleration in rents, which rose 1.5% year-over-year. This marks the first sign of accelerating rents in about a year, though growth remains below long-term norms. The report noted that pricing power typically lags occupancy recovery.
Analysis from RealPage economist Carl Whitaker highlighted a divergence in rent performance, with Class A rents increasing by 1.6% while Class C rents declined by 2.5%, continuing an 11-quarter streak of decreases. Class B performance is increasingly aligning with Class A.
Cities like Austin, which has a substantial construction pipeline, have seen rent declines, while California cities such as San Francisco and San Jose are experiencing significant rent growth, mirroring pre-pandemic levels seen in Florida, where the Live Local Act aims to boost housing supply.