Multifamily rents fell again in December, dropping $4 during the month to $1,715 (-0.2%), under the strain of weakening demand, according to a new report from Yardi Matrix.
Yardi Matrix’s National Multifamily Report for December found that year-over-year rent growth declined by 80 basis points to 6.2%, the lowest level since May 2021. For the full year in 2022, rents increased by 6.2%, the second-highest annual growth this century, only behind 2021’s growth of nearly 15%. With the market entering 2023 with a variety of concerns about the economy and affordability, we expect rent growth in 2023 will be closer to historical levels.
In addition, the report found that deceleration is also hitting the single-family rental market. The average U.S. asking rent dropped $8 in December to $2,083, while the year-over-year increase fell by 100 basis points to 4.8%.
Key highlights:
- National asking rent growth fell to 6.2% YoY, down 80 basis points from November. Indianapolis (11.4%) once again held the top spot among Yardi Matrix’s top 30 metros, followed by San Jose (9.0%), Kansas City (8.3%), Miami (8.1%) and Orlando (8.0%). All of the top 30 metros continue to have positive rent growth year-over-year.
- Rents increased only in New York (0.9%), Indianapolis (0.2%) and Houston (0.1%). In the top 30 metros, 28 had negative growth in Lifestyle units, and 19 saw rents slip in Renter-by-Necessity units. Boston had the biggest monthly drop at -1.1%, although rents rose 5.7% for the year. Raleigh and the Inland Empire recorded 0.9% decreases for the month. San Jose’s asking rents fell 0.7% for the month, though rents were up 9.0% for the year amid gains in occupancy rates.
- The national occupancy rate continues to fall as demand weakens (though it is still positive overall) and deliveries abound in some markets. Of the top 30 Matrix metros, the nine with deliveries of at least 2.5% of stock saw occupancy rates drop by an average of 100 basis points. Only three metros have had an increase in occupancy rates YoY: San Jose (0.7%) and New York and San Francisco (0.2%), while Chicago (-0.1%), Washington, D.C. (-0.2%) and Los Angeles (-0.3%) were only slightly negative.
- Nationally, renewal rents were still surging in the fall, rising 11.8% YoY through October, up 30 basis points from last month. Florida metros Miami (19.2%), Tampa (18.9%) and Orlando (16.6%) were all in the top four, while Raleigh (16.9%) and New York (14.2%) rounded out the top five.
- The growth reflects property owners continuing the process of bringing rents of existing tenants closer to asking rates. October’s renewal rate growth is likely at or near its apex, since asking rents have been negative since November.
- National lease renewals were 64.9% in October, down slightly from the prior month. Renewal rates have settled into a range near 65% after peaking in Q4 2021. Lease renewal rates varied much by metro, led by Philadelphia (77.8%) and Baltimore (70.2%), while they were less in San Francisco (48.5%) and Los Angeles (49.3%).
- National asking rates for single-family rentals increased 4.8% year-over-year in December, a decrease of 100 basis points from November’s year-over-year increase. Occupancy rates decreased 1.4% YoY through November, but were unchanged from the previous month at 95.8%.
Major takeaway:
“In 2023, we expect the market to behave in a more traditional manner, at least nationally. Asking rents should remain flat or fall slightly through the spring, when growth typically is strongest. Then rents will rise moderately, though nowhere near the outsize levels of the last two years,” said the author of the report
“In some ways, multifamily enters 2023 in a typical change of cycles. The market ran hot for two years, with national asking rents increasing 22% in 2021/22. Rents will decelerate this year and usher in the next cycle,” continued the author. “However, the lingering impact of COVID-19 and extraordinary financial engineering make this cycle unique. Multifamily performance in 2023 will be studied for many years because it is at the intersection of multiple trends involving the economy, rents, demand and the capital markets.”
For the full report, click here.
