Lease-Up Demand is Solid, But it Doesn’t Feel Like It

Record volumes of new apartment supply are giving the average U.S. renter more options from which to choose. But demand trends remain favorable in lease-up properties yet to hit stabilization.

Among these assets going through the initial lease-up phase, about 40,000 units were absorbed in 1st quarter 2024. That number is up about 20% more than 1st quarter 2023 volumes.

Despite this impressive data, many operators report that lease-up demand doesn’t feel strong. And they aren’t wrong. There is a disconnect between these market-level figures and property-level figures. As supply levels continue to rise, so has competition. Thus, the amount of leases filtering to each property is below what you’d expect.

The average lease-up community is executing about 10 to 11 leases per month, which is down 10% from last year, despite a 20% increase in overall absorption.

This disconnect is the reason we are seeing weaker-than-average rent growth, especially in lease-up properties where the pressure is on to fill up as quickly as possible.

While lease-up concessions haven’t gone up all that much recently, asking rents have been cut, causing a shrinking delta between Class A rents and lease-up rents. Because of that, there’s only two months worth of concessions difference between a Class A asset and a lease-up property.

As lease-up properties become more competitive, it’s not a huge leap to imagine someone choosing a lease-up unit over their current Class A property.