Multifamily Sees Record-Breaking Absorption in Q4

The multifamily sector witnessed an unprecedented surge in absorption rates during the fourth quarter of 2024, setting new records and reinforcing its position as a dominant force in commercial real estate. According to CBRE’s Q4 report, net absorption reached 183,600 units, marking a 13% quarter-over-quarter increase and an astounding 118% rise year-over-year. This surge underscores the growing demand for multifamily housing across the United States.

Unparalleled Annual Absorption Growth

• Annual net absorption in 2024 stood at 530,600 units, more than double the 248,800 units absorbed in 2023.
• This figure is only 14% below the 2021 record, showcasing strong market resilience and demand.
• In Q4 alone, demand outpaced new supply by 61%, absorbing 114,000 new units.
• Over the entire year, demand exceeded new supply by 18%, absorbing 451,000 new units.

Strong Performance Across All Major Markets

For the first time, all 69 markets tracked by CBRE recorded positive net absorption during Q4—an extraordinary achievement considering the usual trend of low or negative absorption in the fourth quarter.

Top-Performing Cities in Q4 2024

• New York: 18,600 units absorbed
• Houston: 10,400 units absorbed
• Dallas: 8,800 units absorbed

Top-Performing Cities for Full-Year 2024

• New York: 41,700 units absorbed
• Houston: 27,600 units absorbed
• Dallas: 27,400 units absorbed

Additionally, five of the top 15 markets had construction pipelines that exceeded 15% of their existing inventory, demonstrating significant development activity.

Demand Outpacing Supply in Key Regions

Over the past year, 16 out of the top 20 markets for new supply recorded higher absorption rates than completions, reflecting the robustness of the multifamily sector. However, four markets—Austin, Orlando, Tampa, and Minneapolis—saw completions outpacing absorption. This represents a notable turnaround from Q3 when only Washington, D.C. had demand exceeding supply.

Vacancy Rates at Historic Lows

The national vacancy rate dropped to 4.9%, slightly below its long-run average of 5%.

Key Vacancy Rate Trends:

• 30 markets now have vacancy rates below their pre-pandemic averages (compared to 19 in Q3 and 14 in Q2).
• 63 markets recorded quarter-over-quarter decreases in vacancy rates (up from 49 in Q3).
• Only Denver and West Palm Beach saw increased vacancy rates.
• Providence (2.4%) and New York (3.1%) had the lowest vacancy rates in Q4.

Vacancy by Asset Class

• Class A: 5.3%
• Class B: 4.8%
• Class C: 4.9%
• All three asset classes remain 40 to 90 basis points higher than Q1 2020 levels.

Rental Growth Trends

The national average monthly rent increased by 0.5% year-over-year, reaching $2,176. However, rent fell by 1% quarter-over-quarter, following typical seasonal trends.

Regional Rent Growth Performance

• Midwest: 2.8% year-over-year growth (highest in the country)
• Northeast: 2.3% growth
• Pacific: 0.4% growth
• Southeast: -1.1% decline (moderating from previous drops)
• South Central: -2.5% decline
• Mountain regions: -2.8% decline (largest drop recorded)

Despite some regions experiencing negative rent growth, the overall trend indicates stabilization and resilience in the multifamily market.

Multifamily Dominates Commercial Real Estate Investment

The multifamily sector led commercial real estate investment volume in Q4 and for the full year, commanding a 36% market share.

Top Markets for Investment Volume in 2024

• Los Angeles: $9.6 billion
• New York: $9.3 billion
• Dallas-Fort Worth: $8.5 billion

These figures reinforce the confidence investors have in the multifamily sector, driven by strong demand, declining vacancies, and stable rental growth.

Future Outlook for Multifamily Real Estate

Looking ahead, the multifamily sector remains poised for continued growth, despite economic uncertainties. Key factors that will shape the market include:

• Interest Rate Trends: Lower interest rates could boost development and investment activity.
• Housing Affordability: Demand for multifamily units is likely to remain strong as affordability concerns limit single-family homeownership.
• Urban Migration: The return to cities post-pandemic continues to drive demand for rental units in metropolitan areas.
• Sustainable Development: More investors and developers are focusing on eco-friendly and energy-efficient buildings, aligning with regulatory trends and consumer preferences.

Conclusion

The multifamily sector has emerged as a dominant player in commercial real estate, breaking absorption records and leading investment volumes. The strong demand, coupled with declining vacancy rates and stable rental growth, highlights the resilience of this asset class. While some regions face supply-demand imbalances, the overall trajectory remains positive. As we move into 2025, the sector is well-positioned to benefit from macroeconomic trends, evolving consumer preferences, and increased investor confidence. With continued urbanization and shifting housing dynamics, multifamily real estate is set to remain a key driver in the commercial real estate landscape.

FAQs

1. What is multifamily net absorption? Multifamily net absorption refers to the difference between the number of apartment units leased and those vacated within a specific period. A positive absorption rate indicates strong demand for rental properties.

2. Why did multifamily absorption reach record levels in Q4 2024? The record absorption in Q4 2024 was driven by high rental demand, lower vacancy rates, and a strong return to urban living, coupled with economic recovery and job growth.

3. Which cities had the highest multifamily absorption in 2024? New York, Houston, and Dallas led multifamily absorption in 2024, collectively accounting for over 96,700 units absorbed.

4. How do vacancy rates affect the multifamily market? Lower vacancy rates indicate strong demand and a tight rental market, leading to stable or rising rental prices, making multifamily properties an attractive investment.

5. What is the outlook for multifamily real estate in 2025? The outlook for 2025 remains positive, with continued demand, declining vacancies, and strong investment activity expected to sustain growth in the sector.

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