Absorption and Deliveries - How is Kansas City Doing?

Now that we are through Q1 of 2026, how are things looking for KC multifamily absorption and deliveries?

The relationship between absorption and deliveries is a key one, along with "new starts."

Absorption refers to the number of units that became occupied or vacant relative to the previous measurement. It is the net change in occupied units. If Kansas City had 100,000 occupied apartments as measured at the end of 2024 and 105,000 occupied apartments at the end of 2025, absorption would be 5,000 net units over that time frame. You can have negative absorption when the total occupied units goes down; 100,000 units occupied to 95,000 units occupied. In general, it is a reference point for demand in a market and can tell one side of the "what can we expect for occupancy in this MSA, county, or suburban district?" story. The other side of that story is told by deliveries.

Deliveries refers to the number of completed new construction units that are ready to begin being leased and occupied over a given time frame. If there are 110,000 rentable apartments in a city at the end of 2024, and there are 117,000 rentable units at the end of 2025, this would mean that 7,000 new units have been added to that available supply over that 12-month time frame. Deliveries equal 7,000, or 6.4% of existing inventory (Deliveries % = Delivered Units / Initial Inventory).

Absorption and deliveries are the supply and demand markers (along with many other variables that serve as leading and lagging indicators, but are still part of the same story) for multifamily in an MSA.

If 5,000 units are delivered across a 12-month period and 5,000 units are absorbed, then occupancy rates will remain relatively stable for that time frame, all things being equal.

If 10,000 units are delivered and only 5,000 are absorbed, then occupancy will trend down on average for that area because there was more new product added than there was immediate demand for. Usually when this happens, especially multiple quarters in a row, average rents will begin to stagnate or even decrease to facilitate more demand. Cheaper apartments means more people can afford them, which means more people will move into them instead of getting a mortgage or living in another city, which means occupancy rates will climb.

If 5,000 units are delivered and 10,000 units are absorbed, then occupancy percentages will trend upward on average because there was more demand (units absorbed) than there was new product (deliveries). With increasing occupancy rates, apartments will increase rents to ensure they are maximizing profit and staying competitive with the rest of the market. This means when demand outpaces supply, occupancy in general will go up along with average rents. This is how a competitive and open market facilitates the highest and best use of scarce resources. In this case, the scarce resource of reference is apartments and apartment building materials.

For apartments, increasing rents means fewer people will choose to live in an apartment by themselves as compared to times or places where rent is cheaper. Take for example a 2-bed apartment in New York versus Des Moines, Iowa. For $10,000 per month in New York, it is unlikely that someone will rent that out by themselves, they are likely to have a roommate, or maybe a couple of roommates. This ensures that people aren't "over-consuming" the scarce product. People will creatively utilize and distribute the scarce resource as the price pressures people to not be over-consumers. If, for example, there was a mandate tomorrow forcing rents to $1,200 for all 2-bedroom apartments in New York, amidst a ton of other economic happenings, you would have a flood of people renting out 2-bedroom apartments for just themselves and choosing not to have roommates, as there is no longer a need or financial incentive to do so. Compare that to a place like Des Moines, IA. If average rents are $1,200 on 2-bedroom apartments, that is likely because there is not sufficient demand to force rents higher. People can choose to have roommates or not based on their financial hygiene and preferences. You will see far more individuals living by themselves, or with only 1 roommate, than you will in New York for a similar demographic. Cost of housing forces the highest and best use of scarce resources and is not set by any one individual. Rather, it is the net result of all variables working together to determine what people will pay on average based on supply and demand.

The same can be said for the scarce resources of apartment building materials. As their prices go up, fewer developers will be able to build profitably in certain areas with weaker demand, since the stabilized asset will not be able to achieve as high of rents and therefore lower NOI and value for sale. When fewer units are being built (fewer starts and eventually fewer deliveries), there tends to be increased occupancy for that given area as long as demand (absorption) remains relatively constant or even increases slightly. As there is less and less available product, rents will climb to ensure complexes maximize profits, and the market is unconsciously ensuring products are being put to their highest and best use. As rents increase (as a result of increased building materials, then decreased starts, then decreased deliveries, then steady absorption, then increased average occupancy, i.e., increased relative demand), this allows developers to go back to their underwriting and decide if the increased income for a future project will now be profitable given the increased material costs.

This is why increased cost of lumber (or any other building material) can affect something like your average rent in a metro area. Economics are a beautiful orchestra of many supply and demand curves affecting one another and creating somewhat predictable outcomes based on upstream and downstream effects.

With all of that being said, if we want to gauge the health of the Kansas City metro in terms of projected supply and demand for multifamily, we can observe both historic data in KC, recent data in KC, historic data nationally, and recent data nationally.

For example: in 2024, KC recorded over 5,300 units of net absorption. This was a 70% increase compared to 2023. That surge in absorption raised overall occupancy rates to 93.2%, up 0.4% (40 basis points) from the prior year. *(Source: MMG Real Estate Advisors, 2025 Kansas City Forecast)*

These numbers are supported by the fact that Kansas City ranks among the most affordable major apartment markets by ratio of local rent prices to average income, with rent-to-income ratios below 24%, well under the cost-burdened threshold, and our income growth continues to exceed the national rate. *(Sources: Lawn Love, 2025 Most Expensive Metro Areas for Renters; MARC Kansas City Economic Report, 2024)* That relative affordability suggests we are likely to see continued absorption (demand) in our MSA.

Our construction pipeline has "slowed" relative to the peak levels a few years ago, with about 5,900 units under construction, which represents about 3.3% of existing inventory and aligns closely with the national average. Construction starts and new completions have both declined about 20-25% from their peak levels, so it appears that overall development is returning to more typical levels. *(Source: MMG Real Estate Advisors, 2025 Kansas City Forecast)*

With so many new deliveries occurring over the past few years, our market (even with strong absorption) is still filling many of those new units and distributing the consistent demand for housing across the recent spike in supply. As the newly delivered buildings reach stabilized occupancy, we will begin to "feel" the demand in the market again, which will support the ability to push rents at a faster pace. As absorption remains strong over time, rents will weather the storm of the recent supply spike and the market will begin to return to its normal, strong self in the KC MSA in late 2026 to mid-2027, as it pertains to strong demand, normalized supply, improved occupancy, and the ability for landlords to raise rents organically.

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