Multifamily rents increased for the third month in a row in May, rising $7 to $1,716, according to a new report from Yardi Matrix. After a five-month pause in growth, rents previously rose $3 (to $1,706) in March and $5 to $1,709 in April.
Yardi Matrix’s National Multifamily Report for May found that year-over-year growth decelerated to 2.6%, down 70 basis points from April and the lowest level since March 2021.
As for the single-family rental market, rental rates reached $2,100 for the first time in May, little more than a year after topping the $2,000 mark, and year-over-year growth fell 40 basis points to 2.1%. Occupancy rates were unchanged at 95.6%, down 1.0 percentage points from a year ago.
Key highlights:
- Growth continues to be led by metros in the Midwest and Northeast: Indianapolis (7%), Kansas City (6%), New York (6%), Boston (4.8%) and Chicago (4.6%). Meanwhile, YoY growth has turned negative in eight metros.
- The national occupancy rate remained at 95% in April, signaling resiliency of demand in the face of broader economic uncertainty.
- On a YoY basis, occupancy rates fell in all but one Matrix top 30 market: New York, which maintained 98.0% occupancy in April. The largest occupancy decline was in Las Vegas (-1.8%)
- Rents increased 0.4% in the luxury Lifestyle segment and 0.3% month-over-month in the Renter-by-Necessity segment.
- Rents increased in 25 of the top 30 Matrix metros in RBN and 22 in Lifestyle. Chicago (1.0%) led monthly gains in asking rents, with New York (0.9%), San Jose (0.9%), Denver (0.8%) and Seattle (0.7%) rounding out the rest of the top five.
- Lifestyle rents increased by 1.0% or more in May in six metros: Seattle (1.4%), Denver (1.1%), and Nashville, Chicago, New York and San Jose (1.0%).
- Renewal rents, the change for residents that are rolling over existing leases, rose 8.2% YoY nationally in March, down from 9.4% in February.
- Metros where renewal rents dropped include Los Angeles (4.8% from 12.2%), San Francisco (1.4% from 5.6%), Chicago (4.2% from 8.5%), and Austin (9.5% from 11.5%). Demand in New York remained firm, with 16.8% YoY renewal growth in March, up from 16.2% in February.
- National lease renewal rates were 61.8% in March, down from 64.9% in February.
Major takeaway:
“Multifamily demand soared during the pandemic, but has slowed this year and could decelerate even further if the economy weakens as expected in the second half. Slowing demand comes as roughly one million apartment units are under construction in the U.S. and almost 900,000 units will come online by the end of 2024, per Yardi Matrix,” said the author of the report. “The impact won’t be spread evenly, though, as deliveries will be focused in 10 to 15 of the fastest-growing markets. In other metros, the supply growth may outstrip demand, at least in the short term.”
“Matrix has identified eight major metros in which more than 10,000 units are forecast to be delivered by the end of 2024 and that will add at least 8% to current stock. Supply is growing rapidly in these metros precisely because they have experienced rapid growth in population and employment, a trend that is likely to continue going forward due to their lifestyle amenities, inexpensive housing and attractive economic conditions,” the author continued. “However, it may take some time to absorb all of the new supply, limiting near-term rent growth. The key for investors is to examine the dynamics of each submarket before allocating capital.”
The author concluded, “The supply issue could be short-lived since new starts are likely to slow as the current round of projects is completed. The tightening of bank lending and the rising cost of construction materials and land have made new projects more difficult to pencil, while labor shortages and protracted entitlement processes will also serve to slow new starts.”
For the full report, click here.
