- Demand for mid-priced, 3-star apartments shot up 86% YoY in 1Q24 and surged 126% from 2Q23.
- Vacancy rates for 3-star units stabilized at 7.1%, while rent growth for this segment remains steady at 1.6%.
- Absorption of mid-priced units reached 75.8K in 1H24, surpassing the full-year 2023 total of 60K units.
- Sun Belt markets dominated the top 15, while Northeast regions like NYC and Philadelphia also saw strong demand from young renters.
Nationally, demand for mid-priced apartments—specifically those rated three stars or above—has dramatically accelerated in 2024, as reported by CoStar.
By The Numbers
The number of absorbed apartment units (a measure of net occupancy) reached 75.8K in 1H24, surpassing 2023’s total of 60K units—an 86% jump in demand compared to 1Q23 and 126% higher than 2Q23.
Though luxury apartments still hold the highest absolute demand, with 121K units absorbed in 2Q24, the growth rate for mid-priced units is notably outpacing premium properties, which only saw a 40% YoY increase.
Multifamily Rebound
The surge in demand for mid-priced rentals marks a significant turnaround from 2022 when 3-star-rated properties saw negative absorption of 20K units. That year, rising inflation, recession fears, and low consumer sentiment deterred household formation, especially among younger renters.
In contrast, 2024’s improving economic conditions, including an anticipated September Federal Reserve interest rate cut, have reassured many prospective renters.
This has unleashed pent-up demand for housing, particularly among younger adults moving out to secure their first rentals, positioning 3-star apartments as the go-to option.
Stabilizing Numbers
The influx of demand has stabilized vacancy rates for 3-star apartments, holding steady at 7.1% between Q1 and Q2. This also marks the end of a 10-quarter trend of rising vacancy rates for these units.
Rent growth for this market segment remained modest but steady at 1.6%, reflecting balanced supply and demand dynamics.
Regional Trends
While the Sun Belt continues to dominate apartment demand, accounting for 7 of the top 15 markets in 2024, several Northeast cities—including NYC, Philadelphia, and DC—are also seeing robust 3-star unit absorption.
Overall, 3-star-rated properties are outperforming the overall market in many regions. Indeed, in 14 of the top 15 markets, vacancy rates for mid-priced apartment units are lower than the overall market average, while rent growth is stronger in 10 of those markets, indicating sustained demand for affordable housing options.
