CoStar: The Next 90 Days are Critical for Multifamily

The next 90 days—the critical spring leasing period—will set the tone for how multifamily will perform the rest of the year, according to CoStar Group’s Apartments.com.

So far, the deterioration in the multifamily market appears to be slowing but the record supply still under construction and economic uncertainty provide a negative impact, according to Jay Lybik, National Director of Multifamily Analytics at CoStar Group.

The hope is that absorption can match deliveries by the end of the second quarter to help stabilize this sector. Yet, there’s no guarantee since risks are prevalent, including a potential weakening in the labor market and tighter financial conditions.

 Here are three results worth considering and seeing if the effects continue:

Absorption. While 104,000 units were delivered in the first quarter of 2023, the vacancy rate increased only 30 basis points to 6.7%, the smallest increase since the second quarter last year.

Supply Additions. With just more than 1 million units under construction, the national multifamily market is expected to have the largest number of new units delivered since slightly more than half that number were delivered in the mid-1980s. The anticipated result is supply outpacing demand, pushing down rents, particularly in four- and five-star properties, what’s typically considered luxury mid- to high-rises with resort-style amenities. At the end of the first quarter, this same category had the highest vacancy rate at 8.7% and lowest rent growth at 1.5%. In garden-style multifamily properties, referred to as three-star, the outlook is not rosy. Some of these households are squeezed by high inflation and prior rent increases, resulting in rising vacancies. 

Specific Markets. In the first quarter, 38 of 40- markets experienced moderation in year-over-year rent growth. Miami experienced the biggest slowdown with rent growth plunging by 300 basis points to 3.8%, versus a year ago when it was 18%. On the positive front, Baltimore and Boston were the two markets where rent growth did not decline in the first quarter. Indianapolis held the top spot for year-over-year rent growth, at 6.6%, alongside other Midwest markets like Cincinnati, St. Louis and Columbus. A year ago, rent increases were strongest in Sun Belt metropolitan areas.