In the first quarter, 38 out of 40 markets observed a moderation in year-over-year rent growth. However, Baltimore and Boston demonstrated resilience as the only two markets where rent growth did not decrease in Q1. The next three months, which encompasses the vital spring leasing season, will be crucial in determining the performance of the multifamily market throughout the year, as per insights from CoStar Group’s Apartments.com.
Although the decline in the multifamily sector appears to be decelerating, ongoing construction of a vast inventory and economic uncertainties contribute to a negative effect, as stated by Jay Lybik, CoStar Group’s National Director of Multifamily Analytics. The aspiration is that absorption will align with completions by the close of Q2, stabilizing the industry. However, no guarantees exist due to the presence of risks, such as potential labor market deterioration and tighter financial conditions.
Here are three notable outcomes to observe and assess for continued impact:
Absorption. Despite the delivery of 104,000 units in Q1 2023, the vacancy rate rose by a mere 30 basis points to 6.7%, marking the smallest increase since Q2 of the previous year.
Supply Expansions. With over a million units currently under construction, the national multifamily market is on track to witness the most significant number of new units since the mid-1980s when just over half that number were completed. The expected outcome is an oversupply that will likely drive down rents, especially for luxury mid- to high-rise properties offering resort-style amenities. At the end of Q1, this category experienced the highest vacancy rate of 8.7% and the lowest rent growth at 1.5%. As for garden-style multifamily properties, often classified as three-star, the prospects appear bleak. Many households within this segment are burdened by soaring inflation and previous rent hikes, resulting in increasing vacancies.
Highlighting the Boston market, this city, along with Baltimore, stands out as one of the two markets where rent growth did not decline in the first quarter. In contrast, Miami saw the most significant slowdown, with rent growth dropping by 300 basis points to 3.8% compared to 18% the previous year. Indianapolis led the pack in terms of year-over-year rent growth at 6.6%, accompanied by other Midwest markets such as Cincinnati, St. Louis, and Columbus. Last year, rent hikes were most pronounced in Sun Belt metropolitan areas.
