Dive Brief:
- The national average rent rose by $1 between July and August, up to $1,728, according to the latest Yardi Matrix National Multifamily Report. While rents are still rising month-to-month, growth is sliding in the long-term, down 20 basis points from July — and 420 basis points from January — to 1.5% year over year.
- New York City has risen to the top for rent growth by metro, up 5.7% YOY in August, followed by New Jersey at 5.4% and Chicago at 4.9%. One contributor to rent growth in these markets is a relative scarcity of new completions. New York City’s occupancy stands at 98%, while New Jersey’s is 97.3%.
- Conditions are favorable for multifamily overall, but property expenses — particularly insurance — are on the rise, according to Yardi. Inflation is easing, but remains very high. Fed chairman Jay Powell has signaled that interest rates may continue to rise, and the current federal funds rate — 5.25% to 5.5% — creates capital issues for property owners looking to refinance.
Dive Insight:
Despite inflation, rising interest rates and recessionary concerns over the last several months, the apartment market remains bolstered by the economy’s relative strength, according to Yardi. The gross domestic product rose by 2.1% in the second quarter of the year, while the economy has added 3.1 million jobs over the last 12 months and unemployment stands near historic lows at 3.8%.
Buoyed by the strong jobs market, occupancy remains strong at 95%. New unit absorption stands at 190,000 as of July, led in absolute numbers by Washington, D.C., Phoenix, Miami, Chicago and Denver. Charlotte, North Carolina; Tampa; and Nashville, Tennessee, were the best performing metros for absorption as a percentage of stock.
| Market | YOY rent growth, August 2023 | YOY rent growth, July 2023 | Difference |
|---|---|---|---|
| New York City | 5.7% | 5.5% | 0.2 |
| New Jersey | 5.4% | 5.4% | 0 |
| Chicago | 4.9% | 5.2% | -0.3 |
| Indianapolis | 4.8% | 5.5% | -0.7 |
| Boston | 4.6% | 4.3% | 0.3 |
| Kansas City, Missouri | 4.5% | N/A | N/A |
| San Diego | 3.5% | 4.0% | -0.5 |
| Columbus, Ohio | 3.1% | 3.0% | 0.1 |
| Philadelphia | 2.8% | 3.7% | -0.9 |
| Miami metro | 2.1% | 2.2% | -0.1 |
SOURCE: Yardi Matrix
Operating expenses for multifamily owners rose 9.3% in the year ending in June, according to Yardi Matrix data. Over this same period, the average property operating expense rose by $740 per unit to $8,964.
Insurance is by far the largest driver of rising costs, with insurance prices up 18.8% in the 12 months ending in June. Yardi attributes this spike to the rise in natural disasters in recent years, such as hurricanes, wildfires and extreme temperatures, especially in California, Texas and the Southeast.
Repair and maintenance costs rose 14.4% over the same period, while administrative costs rose 11.8% and utilities and payroll both rose 7.8%. Taxes rose 5.9%.
Overall, 85.1% of U.S. multifamily properties recorded cost increases between 5% and 14.9% in this 12-month period. Huntsville, Alabama, saw the highest cost jump at 20%. At the same time, while New York City’s operating costs fell 1.5%, its per-unit expenses are more than twice the national average at $18,484.
Revenue is rising more rapidly than expenses, according to Yardi, and average rents have risen 20% since January 2021. However, Yardi cautions that as rent growth slows, owners should pare back expenses in order to maintain and grow net income.
