Apartment Completions Rise Resulting in Slower Absorption Rates

The percentage of new apartment units that were absorbed within three months of completion rose from 50% to 55% in the second quarter of 2024, according to the Census Bureau’s latest release of the Survey of Market Absorption of New Multifamily Units (SOMA). The survey covers new units in multifamily residential buildings with five or more units. Meanwhile, the absorption rate within three months for condominiums and cooperative units fell over the quarter, from 80% to 66%.

Apartments

The percentage of apartments absorbed within three months has fallen significantly from its peak of 75% in the third quarter of 2021, as shown in the graph above. Currently, the rate stands at 55% which is coupled with an uptick in completions, as the SOMA estimates show a new high of completions at 118,600 units in the second quarter of 2024. This is well above the level of completions a year ago, which stood at 83,140. The pace of multifamily units being completed has picked up, as many units under construction over the past year are reaching the market. Since the first quarter of 2022, completions have been above 75,000 for nine consecutive quarters, as seen in the graph below.  The level of completions has also risen for the past three quarters.

Along with the three-month absorption rate and completions, SOMA reports absorption rates within six-months, nine-months, and 12-months of completion. The absorption rates for all time periods follow similar downward trends as the number of apartments completed has ticked upwards over the past two years. For apartments completed in the 1st quarter of 2024, the absorption rate within six months of completion was 75%, down from a peak of 88% in the third quarter of 2021 but up from 69% the previous quarter.

For the nine-month period, the absorption rate of apartments completed in the fourth quarter of 2023 fell to 83% down for the third consecutive quarter. This rate also peaked at 96% in the same quarter as the other periods, the third quarter of 2021.

Finally, apartment units completed in the third quarter of 2023 were 93% absorbed within a year following completion. The trend remains the same for the 12-month period as the other time periods, as it peaked in the third quarter of 2021 at 98%.

Condominiums and Cooperative Units

The absorption rate for new condominiums and cooperative units fell to 66% for the quarter. The previous quarter’s rate was significantly revised, up from 69% to 80%, which helps to explain the dramatic decline.

Total completions of new condominiums and cooperative units, according to the SOMA, rose over the quarter up from 2,829 to 4,366. Quarterly completions of these units peaked in the second quarter of 2018, at 7,996 completions but have steadily fallen since that peak.