Multifamily rents have been showing signs of slowing growth. According to the latest Multifamily National Report by Yardi Matrix, multifamily rents across the nation are still increasing, however the growth rate is considerably lower as compared to rent growth in the previous decade. This trend comes in the wake of a brief period of slowdown at the beginning of the pandemic, indicating a new shift in the dynamics of the nationwide multifamily rental market.
Moderate Monthly Growth in Multifamily Rents
In June, asking rents for multifamily properties rose by 0.4% on a month-over-month basis, reaching an average of $1,726. Though this growth is still positive, it is noticeably more restrained compared to previous years. The year-over-year rent growth for the same month was 1.3%, reflecting the overall sluggishness in the market.
Slowdown in Single-Family Rental Growth
Not only multifamily properties but also the single-family rental sector has experienced a slowdown in rental growth. In June, single-family rents grew by only 1.3% year-over-year, which is 80 basis points lower than in previous periods. This data indicates that the challenges in the rental market are not confined to multifamily properties but are part of a broader trend affecting the real estate industry.
Strong Demand Sustains Occupancy Rates for Now
Despite the slower growth in rents, demand for apartments remains robust. The report highlights that occupancy rates stand at 95% nationwide. This sustained demand can be attributed to two key factors.
- A thriving job market has seen the addition of 1.5 million positions in the first half of 2023, leading to increased housing demand.
- Higher interest rates have made purchasing residential property more expensive, pushing more individuals towards renting rather than buying homes.
Momentum in Rental Growth Post-2020
The multifamily rental market may be experiencing a slowdown, but it still retains some momentum post-2020. The first-half rental growth averaged over 6% in the last two years, showcasing the industry’s resilience even amidst challenging times. In comparison, from 2014 to 2019, the average growth in the first half of the year was considerably lower at around 2.5%. This indicates that despite the current slowdown, the market is still outperforming previous years in terms of rental growth.
Regional Concentration of Multifamily Rental Growth
The report identifies that multifamily rental growth remains concentrated in specific regions of the United States. The Midwest and Northeast regions have seen a higher concentration of rent growth compared to other parts of the country, which is a notable change from previous trends. This disparity is largely due to fewer new deliveries in these regions, creating a supply-demand imbalance and contributing to the upward pressure on rents in those parts of the country.
New Jersey Leads in Rental Growth
Among the states experiencing robust rental growth, New Jersey stands out with the highest year-over-year rent increase in June, at an impressive 6.5%. This remarkable growth can be attributed to the influx of New Yorkers seeking more affordable housing options across state lines.
Unexpected Rent Declines in Prominent Markets
Interestingly, some markets experienced a surprising downturn in rental growth in June. Cities such as Phoenix, Las Vegas, Austin, and Seattle, which had previously witnessed substantial rent increases, saw year-over-year declines in rents. These unexpected declines may indicate shifting preferences and changes in demand patterns in these regions, leading to potential challenges for landlords and property owners.