Despite Record Supply, Apartment Fundamentals Remain Strong

In the second quarter of 2024, 119,000 apartments were completed in the U.S., a 29% year-over-year increase – for a total of 460,000 deliveries during the 12-month period – a record high. The net absorption of 127,000 apartments marked the sixth-strongest quarter in over two decades. Despite the new deliveries, the U.S.’s second quarter vacancy rate was 5.5%, unchanged from the prior quarter and the first time in two years the rate has not increased.

While deliveries hit a record high in the second quarter, multifamily units under construction fell to 708,000 (about 4% of existing inventory) from a peak of 760,000 in the first quarter. With fewer units starting construction, deliveries are projected to continue to decline in 2025 and 2026 while renter demand is expected to remain strong, resulting in higher rent growth and lower vacancy rates.

In parallel, second quarter apartment cap rates (a metric used to value properties that has an inverse relationship to value) remained unchanged – for the first time since the Fed began raising interest rates in 2022 – at 5.7%. Additionally, investment volume increased 82% in the second quarter to $38.3 billion, highlighted by Blackstone’s $10 billion acquisition of AIR Communities’ apartment portfolio. According to Kelli Carhart, leader of CBRE’s Multifamily Capital Markets, “market sentiment has improved significantly, as many investors believe that values have bottomed”.  Despite record new supply and a turbulent interest rate environment, the forecast for multifamily performance remains strong.

Pickleball: Coming to an Apartment Near You

In the ever-evolving landscape of apartment living, amenities play a pivotal role in attracting and retaining residents. From state-of-the-art fitness centers to luxurious rooftop lounges, property owners are regularly searching for the next hip amenity to set their communities apart. The latest trend – pickleball courts – has been making waves across multifamily housing. For those unfamiliar with the sport (and likely living deep in a Himalayan cave), pickleball combines elements of tennis, badminton and ping-pong and is the U.S.’s fastest growing sport. Played on a small court with a paddle and a plastic ball with holes, pickleball is generally easy to pick up and appeals to all ages.

Compared to traditional tennis courts, pickleball courts require less space, making them an attractive option for apartment communities with limited land. Pickleball courts can easily replace existing tennis and basketball courts – and turn a single court into two or three pickleball courts – and create additional income via charging a fee for reservations, hosting leagues or tournaments and offering instructional clinics.

As apartment communities compete for residents through their amenity packages, pickleball courts are emerging as a high-demand, relatively low-cost option. Additionally, pickleball caters to a growing demand for wellness and recreation and can help foster a stronger sense of community among residents, reducing turnover and the associated operational expenses.

(Editor’s Note: At one of our Phoenix, Arizona communities, Pathfinder is working to convert an unused basketball court into several pickleball courts, the first in our portfolio.)