Multifamily Fundamentals Are Beginning to Stabilize

Article originally posted on Globe St. on May 2, 2023

The vacancy rate isn’t rising as fast and absorption is expected to turn positive next quarter.

The overall multifamily vacancy rate increased by 30 basis points quarter-over-quarter in the first quarter to reach 4.9%, according to CBRE. This was less than the 70-bps increase in Q4 2022 and the 90-bps jump in Q2 2022.

At the same time, CBRE expects that absorption in the sector will turn positive in the second quarter, following negative net absorption of 1,900 units this quarter and negative 14,000 units in the prior quarter.  Indeed, slightly more than half, or 35, of the 69 markets tracked by CBRE have already recorded positive net absorption this quarter led by Orlando (3,200 units), Charlotte (1,300) and Nashville (1,200).

Meanwhile, new construction deliveries of 58,600 units in the first quarter brought the four-quarter total to 332,200—slightly lower than the annual total of 343,300 in 2022, CBRE reports. “Construction timelines remain elevated and should help smooth out the delivery of the significant pipeline of new product underway,” it writes.

In short, the multifamily sector appears to be stabilizing.

“The multifamily sector has been in search of stability after experiencing two significant shifts,” says Matt Vance, Americas Head of Multifamily Research for CBRE, referring to the Fed’s interest rate hikes and the shift in fundamentals when supply growth began to outstrip demand.

“Vacancy is still climbing, but much less quickly as demand regains its footing.”