The multifamily sector seems to be coming into equilibrium after a roller coaster into and out of the pandemic, Coldwell Banker Commercial wrote in its fall trend report.
Supply has been a contradictory factor. The report quotes the National Multifamily Housing Council, which estimates that the country needs 4.3 million more apartment units by 2035 to meet the demand for rental housing, especially as costs to buy a house, with high prices and mortgage interest rates, keep millions from moving into ownership from renting. It also includes 600,000 units that resulted from underbuilding after the Great Recession kickoff in 2008.
The report quotes Freddie Mac’s estimate that it would take 1.5 million vacant for-sale and for-rent homes to bring the vacancy rate for rental homes and availability of for-purchase homes in line with historical averages.
The result has been that asking rents are 20% above their pre-pandemic levels. At the same time, annual rent is about -0.7%, with the national levels being $10 cheaper a month than the same time last year. There is an oscillation around $1,400 with a gently descending median value, according to data from Apartment List, but one that is reaching a general stability.
Asking rents in the Sun Belt have been falling, especially in “boom towns” that saw significant new supply above population growth. Rents in Austin, Tucson, Raleigh, Jacksonville, and Atlanta saw rent drop between 5.7% and 2.2% over the past 12 months.
That’s not to say rent growth doesn’t exist. It does, depending on the metropolitan area. The top ten locations for rent growth are New York City (5.4%); Kansas City (4.2%); Boston (3.4%); Indianapolis (3.3%); Washington, D.C., (3.1%); Detroit (3%); Columbus (2.8%); New Jersey (2.8%); Chicago (2.4%); and Philadelphia (1.9%).
But the broader reality is markets with too much supply, too little demand, and mechanisms driven by landlords who need to fill space: concessions and stabilization. According to Fannie Mae, nearly 21% of all multifamily were offering average concessions of 5% in the second quarter of 20204.
The number of Class A units offering concessions was 20%, up from 13.5% the year before. Class B units went from 13.1% offering concessions to 20.3% in the second quarter of 2023. And 12.7% of Class C units in 2023 offered concessions; in Q2 of 2024, 21.4% did.