Multifamily Stages Strong Rebound in Demand

Article originally posted on Globe St. on April 8, 2024

Amid all the angst about the stability of the multifamily sector, there are signs that the market is beginning to work its way through its problems, even though parts of the country, especially in the overbuilt South, still show weakness.

A report by Apartments.com, a CoStar Group online marketplace, shows rising absorption, even though vacancy remains high due to oversupply. “The U.S. multifamily market staged a strong rebound in demand during the first quarter of 2024, as 104,000 units were absorbed, the highest number since the third quarter of 2021,” the report declared.

Nevertheless, the vacancy rate ticked up to 7.8% in March 2024 from 7.7% in December 2023, as 140,000 new units were delivered. This was the 10th consecutive quarterly increase in the vacancy rate – but the smallest in that period.

National average annual asking rents rose by 0.7% in March, less than the 0.8% of the two prior months. “Since mid-2023, annual rent growth has been hovering around 1% after rapid deceleration in 2021 and 2022. Month-over-month rent growth was 0.3% in all three months of the quarter,” the report noted.

Rents rose most strongly in the Midwest (2.2%) and Northeast (1.3%), where there was little new construction. In the first quarter, Louisville led the nation with 3.4% annual rent growth, followed by Northern New Jersey (2.8%) and Cleveland (2.4%). In the West, rent growth was “restrained but positive.” However, in the oversupplied South, rents slipped.

The first quarter of 2024 saw 88,000 luxury four and five-star units absorbed. But since this segment also represented new supply, rents still fell 0.3%. However, for mid-priced, three-star assets, rent growth remained positive at 1.3% and net absorption shot up from 10,000 units in 4Q2023 to 27,000 in 1Q2024.

The story was different for one and two-star properties, where negative absorption remained a problem. “Households at this price point struggle with higher housing costs and the elevated costs of everyday items, pushing some to seek alternative housing solutions such as moving in with roommates or returning to the family home,” the report commented.

In 2024, 495,000 multifamily units are expected to be completed – 20% fewer than in 2023. “After completions of multifamily units reached a 40-year record in 2023, this year may offer the multifamily market a chance to catch its breath,” the report noted — cautioning that this would depend on the market and the price point.