Dive Brief:
- The national average multifamily rent fell by $4 in December to $1,709, according to Yardi Matrix’s latest National Multifamily Report. Year-over-year rent growth remained the same, ending the year at 0.3%. Aside from the start of the COVID-19 pandemic, when rent growth slowed to 0.1%, 2023 saw the lowest YOY rent growth since 2010 at 0.2%.
- Overall, the year ended with the multifamily market in a downswing, according to Yardi. The national average rent fell in each of the last five months, down $17 total, while rent growth has declined 1.0% since the summer.
- Yardi anticipates that rent growth will remain tepid throughout the early part of 2024. However, demand for apartments remains strong, as does household formation and job growth.
Dive Insight:
Some of the deceleration in rent growth can be attributed to rising multifamily supply over the past year. “While it is prudent to prepare for downside scenarios, conditions may not be as weak as they appear on the surface,” the report said. Yardi expects moderate to positive rent growth through the rest of 2024.
At the metro level, while New York City’s YOY rent growth fell slightly from the last month, it still posted significantly higher rent growth than other major metros, coming in at 5.9%. The Northeast and Midwest’s major metros led in rent growth, while major Sun Belt metros fell under -3.0% YOY or lower, owing to a high supply of new units.
| Market | YOY rent growth, December 2023 | YOY rent growth, November 2023 | Difference |
|---|---|---|---|
| New York City | 5.9% | 6.2% | -0.3 |
| New Jersey | 4.2% | 4.0% | 0.2 |
| Columbus, Ohio | 3.8% | 3.4% | 0.4 |
| Kansas City, Missouri | 3.3% | 4.0% | -0.7 |
| Chicago | 3.1% | 3.2% | -0.1 |
| Boston | 3.0% | 2.8% | 0.2 |
| Indianapolis | 2.4% | 2.3% | 0.1 |
| Philadelphia | 2.0% | 2.0% | 0 |
| Washington, D.C. | 1.6% | 1.5% | 0.1 |
| San Diego | 1.4% | 1.5% | -0.1 |
SOURCE: Yardi Matrix
While the market is on track to deliver more than 500,000 new units in 2024, starts are slowing down, owing to difficulties with interest rates and expenses. Starts are expected to be weak, though the impact may not be felt on deliveries until 2026.
Expenses rose sharply in 2022 and 2023, driven by labor, maintenance and insurance. Some of these expenses may fall as inflation falls, but insurance premiums could continue to increase due to the rise in severe weather events.
Interest rates fell by 100 basis points in December, and the market now expects no more rate hikes, with some cuts through 2024. Any additional cuts would reduce the refinancing gap for multifamily owners, but loan coupons are still far above where they were in the first quarter of 2022 when the Fed began raising rates, Yardi said.
This downward trend may alleviate some, but not all, pressures on the market, according to the report. Short-term loans on value-add properties issued between 2020 and 2022 with low rates will likely see the most distress.
