Rent Trends Indicate an Exciting Leasing Season in the Multifamily Market
April showers may bring May flowers, but not before we take the time to reflect on all that happened in the Multifamily world the first quarter of this year, which had some big shoes to fill given 2021’s historic demand, rent growth, and low vacancy rates. Rent trends and positive absorption paved way for the new year exhibiting similar qualities to 2021.
A bright year ahead
The first indicator for a bright year ahead: Search engine activity. Data from Apartments.com indicates that at the start of this year, search activity was trending above last year’s record pace and is currently matching searches from 12 months ago. This level of search indicates that demand is still elevated and renters are still on the hunt for all possible available units.
According to Jay Lybik, National Director of Multifamily Analytics at CoStar Group, “Potential demand obtained in Apartments.com search data in 2022 failed to translate into absorption matching last year’s pace. Absorption totaled 58,000 units in the first three months of 2022, but new deliveries outpaced that with 80,000 units coming online. The resulting supply/demand imbalance pushed the vacancy rate up 10 basis points to 4.9%.” Markets with the largest supply/demand imbalance were Jacksonville and Raleigh, with vacancy rates up 140 and 110 basis points, respectively. While both markets had positive absorption, supply additions significantly outpaced the demand.
We’re poised for a strong leasing season
According to Lybik, the national risk of multifamily oversupply nationwide is relatively limited due to the overall shortage of available housing. 80,000 new units have already delivered this year, moving right along with the 423,000 new units expected. This forecast sits just below the 2020 peak.
The good news: demand seems poised for a strong spring and summer leasing season, especially given the dramatic drop in reported COVID-19 cases during March, Lybik noted, which could allow for the economy to return to more predicable growth patterns.
What we’re watching: construction
One of the challenges we may see ahead: Construction outpacing demand. Several markets, including Austin, Nashville, and Miami, could see construction pipelines outpace near-term demand growth, as current construction activity exceeds 10% of inventory. Austin, for example, delivered 4,700 units in the first quarter, the second highest to New York’s 7,200.
Rent growth will hold steady
National rent growth also hit a record in 2021 at 11.3%. While we won’t expect to see the same throughout all of 2022, the first quarter saw year over year rent growth holding steady at 11.2%, and many markets are projected to see rent growth this year above their pre-pandemic averages.