National Rent Growth Slows, Supply & Demand Gap Narrows
National rent growth slowed down to just 1% in Q4 as new apartment supply outpaced demand.
Jordan B. & Han-Gwon Lung
January 08, 2025
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Good morning. Rent growth continues to cool, with a 1% annual increase by December 2024, as the market inches toward equilibrium. Plus, Party City is auctioning 695 store leases across 44 states.
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Market Snapshot
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*Data as of 01/07/2024 market close.
COOLING DOWN
National Rent Growth Slows as Supply & Demand Gap Narrows
National apartment rent growth slowed to just 1% in Q4, the second consecutive quarter of slowing rent growth as a surge in new supply outpaced demand.
Easing growth: Year-over-year rent growth dipped to 1.0% in December 2024, down from 1.1% in September, per Apartments.com. National rents averaged $1,729, up slightly from $1,712 in 2023, but fell 0.4% QoQ—the second straight decline.
Vacancy and Supply: Vacancy rates remained steady at 8.0% for the quarter. The supply-demand gap narrowed, with 133,300 new units delivered and 113,200 units absorbed in Q4. Full-year absorption rose 70% year-over-year, hitting 556,800 units, a promising indicator of market stabilization.
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Regional winners: Detroit led rent growth among major U.S. markets with a 3.2% annual increase, followed by Kansas City (3.0%) and Cleveland (2.8%). Midwest markets demonstrated resilience, benefitting from limited supply growth.
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Regional losers: Austin saw the steepest annual rent decline at 4.8%, while Sun Belt markets such as Denver, San Antonio, Jacksonville, and Phoenix recorded declines between 2.1% and 2.9%. Oversupply remains a key challenge.
Zoom in: Luxury 4- and 5-star units absorbed over 429,000 units in Q4. However, rent growth stagnated at 0.2%, with a vacancy rate of 11.4%. Mid-priced units performed better, showing 1.3% annual rent growth and a vacancy rate of 7.3%. Improved economic confidence likely boosted demand in this segment.
➥ THE TAKEAWAY
Outlook for 2025: As the supply-demand gap narrows, more multifamily markets could stabilize. However, Sun Belt metros with heavy construction pipelines that started during pandemic migrations may continue to face pressure until absorption rates catch up to supply-driven vacancies and competition.
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✍️ Editor’s Picks
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On the horizon: The US CRE market is poised for an investment rebound in 2025, driven by lower interest rates, increased capital market activity, and narrowing bid-ask spreads.
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25% committed: The North Branch Fox Run SFH development opened to accredited investors days ago with interest building fast and $375K of capital already committed to the project. (sponsored)
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Top deals: SL Green (SLG) and Jeff Sutton dominated NYC’s 2024 CRE sales rankings with billion-dollar deals, signaling both distress-driven discounts and renewed optimism for 2025.
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Accounting overhaul: The FASB is exploring new rules for non-GAAP metrics like EBITDA and intangible assets, potentially reshaping financial reporting for U.S. companies in 2025.
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About time: Lab-grown diamonds are dominating as their prices plummet and demand for natural diamonds dwindles.
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Wealth magnet: Punta del Este is drawing global wealth managers and affluent buyers, fueled by Uruguay's investor-friendly policies, tax breaks, and political stability.
🏘️ MULTIFAMILY
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Rent-Fixing: The DOJ has broadened its lawsuit against RealPage, alleging now six major landlords collaborated in a rent-fixing scheme affecting over 1.3 million units nationwide.
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Still Rome: NYC led the nation in multifamily permitting with a 53% YoY jump in November, signaling a strong development pipeline as many Sun Belt markets saw permitting declines.
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Westwood expansion: Uncommon Developers plans a 12-story, 88-unit apartment tower in Westwood, leveraging California’s stackable density bonus laws for greater height and affordability.
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Refinancing push: Fortress Investment Group wants to refinance a $350M loan for the nearly completed 125 Greenwich supertall in Lower Manhattan, signaling renewed optimism in debt markets.
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Higher thinking: Palladius Capital Management bought 9 value-add residential properties with 2.5K units for $579M, continuing its aggressive strategy focused on high-growth student housing.
🏭 Industrial
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Industrial hotspots: Cleveland leads the top U.S. industrial markets for 2025, driven by low vacancy rates, strategic infrastructure, and logistics demand, with Jacksonville and Houston also ranking high.
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AI expansion: Microsoft (MSFT) plans to invest $80B in data centers in 2025, up 44%, to support AI growth and cloud computing, with over half earmarked for US projects.
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Placing bets: Ares Management (ARES) and DRA Advisors invested $86M in Chicagoland industrial assets as property values cool, revealing continued investor confidence despite rising vacancies.
🏬 RETAIL
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Historic auction: Following its second bankruptcy, Party City is auctioning 695 store leases across 44 states. Discount retailers, gyms, and medical offices are expected to pursue the leases.
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Homemade unhappiness: Joann is closing several US stores as part of location optimization following its 2024 bankruptcy, while still opening and remodeling select locations.
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Happy holiday sales: Global online holiday sales hit a record $1.2T, but rising returns totaling $122B could cut into profits, highlighting both the power and pitfalls of AI-driven shopping experiences.
🏢 OFFICE
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Strategic buy: Highwoods Properties acquired ground leases for 14 properties at Atlanta's Century Center office park for $50.6M, consolidating ownership for greater long-term flexibility.
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Seattle shift: Seattle's office market showed signs of recovery in Q4, with negative absorption easing and major deals like Apple’s 193 KSF lease indicating improving tenant demand.
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DC breakthrough: BXP secured a 150 KSF lease with McDermott Will & Emery, enabling the launch of a rare 320 KSF trophy office development in Downtown DC.
🏢 HOSPITALITY
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How much? Dynamic City Capital acquired two Marriott (MAR) hotels near Disneyland for $303M, paying a whopping $647K per room—85% above the Orange County average.
📈 CHART OF THE DAY
Despite the Fed cutting interest rates by 100 bps since September, 10-year yields have not behaved as expected.
In fact, they’ve done the opposite compared to previous cycles, climbing by the same margin as the rate cuts.
This raises questions on remaining economic concerns and foreign demand—as well as skepticism over the cuts.
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