Return of seasonal demand helped stabilize sector. The spring months of 2023 were once again a strong period for apartment demand, after the pandemic had disrupted normal seasonal patterns. From April through June, about 80,000 units were absorbed on net, the largest quarterly total since the opening three months of 2022. At the same time, net absorption fell short of the 107,400 rentals finalized during that span, keeping vacancy on the ascent. These dynamics foreshadow the remainder of 2023. Household creation is gradually improving, yet continues to be hamstrung by economic uncertainty and inflation. As a result, net absorption will remain in positive territory through year-end, but will trail record construction

Development is historic, but very concentrated. The 200,000 units finalized during the first half of 2023 marked the largest total over a six-month span on record. An additional 200,000 units are expected to deliver during the second half, placing annual inventory growth at a historic 2.1 percent for 2023. Construction is clustered, however, with migration destinations in the Sun Belt receiving an outsized share of new supply. Austin, Charlotte, Jacksonville, Nashville, Raleigh, Reno and Salt Lake City are each on pace for 5-plus percent inventory growth this year. Conversely, some of the nation’s largest population hubs — Chicago, Los Angeles, New York City, Orange County and San Diego — will register sub-1.5 percent supply expansions.

Dense coastal hubs stand out. Some markets are better weathering recent headwinds. As of 2023’s mid-point, just 10 major U.S. metros had both year-over-year vacancy increases below 200 basis points and sustained sub-5 percent rates entering July. That list included six of the nine major markets with average effective rents above $2,500 per month: Boston, Los Angeles, New York City, Orange County, San Diego and San Jose. Despite relatively high living costs, these cities remain attractive spots to work and reside. Extreme homeownership barriers, meanwhile, make renting a comparatively affordable option

Class C rents realign with the market. The gap between an average Class B and Class C effective rent stretched from about $245 per month in 2019, to $400 per month in the third quarter of last year. Since that point, lower-tier rents have begun to catch up to the market. Class C rates grew by the fastest pace among segments over the past nine months, at 4.9 percent. Still, as of June 2023, they maintained a $340 monthly discount on average to Class B counterparts.

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