Record High Multifamily Construction Deliveries Drive Vacancy Rates Higher

According to CBRE's latest research, the U.S. multifamily market experienced a surge in new construction deliveries in 2023, leading to a slowdown in rent growth.

New construction deliveries reached a new high of 140,800 units in Q4 2023, bringing the four-quarter total to a record 416,500. Fewer construction starts in recent quarters indicates there will be a decrease in deliveries in 2025 and beyond.

The multifamily vacancy rate rose slightly by 20 basis points (bps) quarter-over-quarter to 5.4% in Q4 2023. This rise was consistent with the 20-bps increase in Q3 2023. Notably, net absorption reached 84,800 units in Q4 2023, representing a strong fourth quarter that was more than four times the pre-pandemic Q4 average.

"Record new construction was met with robust renter demand in the fourth quarter," said Kelli Carhart, leader of Multifamily Capital Markets for CBRE. "We anticipate investment activity to pick up beginning in the second quarter, driven by the Fed's likely rate cuts, which will help improve capital markets conditions. An uptick in loan maturities will also create transaction opportunities for distress-focused investors."

The average monthly net effective rent grew 0.4% year-over-year in Q4 2023, significantly lower than the pre-pandemic five-year average of 2.7% and well below the peak of 15.2% in Q1 2022.

Other Q4 2023 Multifamily Sector Highlights: 

• The Midwest and Northeast were the only regions to experience positive year-over-year rent growth across all markets in Q4 2023. The Midwest led with 2.7% (down from 2.9% in Q3 2023), followed by the Northeast with 2.4% (down from 2.9%). The Southeast, South Central, Mountain and Pacific regions all saw negative average rent growth.
• Of the 69 markets tracked by CBRE, most (56) recorded positive net absorption in Q4 2023, with New York (8,800 units), Austin (6,700) and Atlanta (6,000) leading the way.
• The top five markets for new deliveries in 2023--New York, Dallas, Austin, Houston and Atlanta--accounted for 27% of the national total.
• Nearly all markets (68 out of 69) tracked by CBRE had vacancy rates at or above 3.0%, with Madison having the lowest vacancy rate at just 2.8%.