New Apartments Sitting Longer as Supply Grows

The Changing Landscape of Apartment Rentals

The rental market for new apartments is experiencing a significant shift, as units are taking longer to rent than they did in previous years. According to a recent report from Redfin, less than half of newly constructed apartments completed in the third quarter of 2024 were leased within three months. This trend matches the fourth quarter of 2023 as the lowest absorption rate on record, aside from the early months of the pandemic.

Increased Supply Leading to Longer Vacancies

A primary factor driving this trend is the surge in apartment construction. In the third quarter of 2024, an unprecedented 142,900 new apartments were completed, giving renters a broader selection and causing some units to remain vacant for extended periods. The increased supply is a response to the heightened demand witnessed during the pandemic, when rental prices surged and developers accelerated construction projects.

Landlords Adapting to Market Conditions

With a growing number of available units, landlords are making adjustments to attract tenants. Some of the strategies being implemented include:

• Lowering rental prices to stay competitive in an oversupplied market
• Offering concessions such as free parking, discounted deposits, or one-month-free rent deals
• Enhancing amenities to differentiate properties and entice renters
• Flexible lease terms to accommodate tenant preferences

However, Redfin senior economist Sheharyar Bokhari warns that these incentives may not last indefinitely. Permits for new apartment construction have decreased by nearly 10% year over year, suggesting that fewer new units will be available in the coming years. This could give landlords more leverage to increase rents once the current wave of supply is absorbed.

Rental Prices and Vacancy Rates

As supply has increased, rental prices have stabilized. At the end of 2024, the vacancy rate for buildings with five or more units was 8.2%, the highest level since early 2021. Additionally, median rent is currently $100 below its peak and saw only a 0.4% year-over-year increase to $1,607 in February 2025. This is a stark contrast to the double-digit rent increases seen during the pandemic, signaling a market correction.

Which Apartments Are Renting the Fastest?

Interestingly, different apartment sizes are experiencing varied absorption rates. Redfin's report highlights that:

• Studio apartments are in higher demand, with 50% of newly completed units renting within three months (an increase from 42% a year ago).
• One-bedroom apartments saw their absorption rate decline from 54% to 49%.
• Two-bedroom apartments dropped slightly from 51% to 50%.
• Three-bedroom and larger units experienced a drop from 56% to 51%.

The relatively strong performance of studio apartments could be attributed to limited supply growth. While the completion rate for all other unit types saw double-digit growth, studio apartment completions increased by just 0.4%, keeping demand steady.

The Future of Commercial Real Estate in Rental Markets

Will Rents Rise Again?

While rental prices have stabilized, the future trajectory of rent increases will depend on multiple factors, including economic conditions, interest rates, and housing policies. The slowdown in new apartment construction suggests that renters may have fewer choices in the coming years, which could put upward pressure on prices.

How Renters Can Take Advantage of the Current Market

For renters, now may be an opportune time to secure a lease while landlords are still offering incentives. Here’s what tenants should consider:

• Look for deals: Many landlords are offering discounts or perks to fill vacancies.
• Negotiate terms: With increased supply, renters have leverage to request lower rent or additional amenities.
• Lock in long-term leases: If rental prices begin to climb in the future, securing a multi-year lease could help keep costs predictable.

Frequently Asked Questions (FAQs)

1. Why are new apartments taking longer to rent?

The primary reason is the increase in supply. With a record number of new units being completed, renters have more choices, leading to longer absorption times.

2. Are landlords lowering rents to attract tenants?

Yes, some landlords are reducing rents and offering incentives like free parking or lease discounts to fill vacancies.

3. Will rental prices increase again in the future?

It’s possible. New construction is slowing down, meaning supply may tighten in the next few years, which could lead to rent increases.

4. Which apartment types are renting the fastest?

Studio apartments have the highest absorption rate, possibly due to limited supply growth, while one-bedroom and larger units are taking longer to rent.

5. How can renters take advantage of the current market?

Renters should look for deals, negotiate lease terms, and consider long-term leases while rental prices remain stable.

Conclusion

The rental market is experiencing a shift due to the surge in new apartment construction, causing vacancies to rise and rental growth to slow. While landlords are currently offering discounts and incentives, the market may tighten in the future as new construction slows. Renters should take

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