Exclusive: Experts Reveal Positive Outlook for US Apartment Markets

The U.S. multifamily market has shown promising signs of stabilization in the second quarter of 2023, according to the latest research by CBRE.

The U.S. multifamily market has shown promising signs of stabilization in the second quarter of 2023, according to the latest research by CBRE. With a rebound in absorption rates and a modest increase in vacancy, the market appears to be recovering steadily. It is noteworthy that the rate of multifamily vacancy only rose by 10 basis points (bps) quarter-over-quarter in Q2 2023, as compared to the 30 bps increase in Q1 2023 and the significant 70 bps rise in Q4 2022. This data suggests that the market is becoming more balanced and resilient.

One of the most positive indicators of this recovery is the surge in net absorption, which reached an impressive 70,200 units in Q2 2023. This figure represents the highest level of net absorption since Q1 2022 and reflects a strong resurgence in renter demand. As the economy continues its path to recovery, it is encouraging to witness such robust growth in the multifamily sector.

In addition to absorption rates, the average monthly net effective rent has also seen a modest increase. Year-over-year, the average net effective rent rose by 2.6% in Q2 2023. While this growth aligns with the pre-pandemic five-year average of 2.7%, it is important to note that it is significantly lower than the record-breaking 15.2% increase observed in Q1 2022. Nonetheless, this steady growth suggests a healthier and more sustainable rental market.

New construction deliveries in the second quarter of 2023 have contributed to the upward trajectory of the market. With 91,400 units added to the supply, the four-quarter total now stands at a record high of 351,500 units. However, it is worth mentioning that declining construction starts over the past few quarters are expected to result in fewer new deliveries in 2024 and beyond. This shift indicates a more controlled and balanced market, fostering stability and ensuring supply meets demand.

CBRE's research also underlines the regional variations within the multifamily market. In Q2 2023, the Northeast/Mid-Atlantic region experienced the highest year-over-year rent growth, led by Newark (5.6%), Providence (5.3%), and Hartford (5.2%). Following closely behind, the Midwest recorded the second-highest rent growth at 4.3%, while the Southeast, South-Central, Pacific, and Mountain West regions experienced growth rates of 2.0%, 1.7%, 1.4%, and -0.9%, respectively. These insights provide valuable information for investors and stakeholders looking to capitalize on promising markets.

Moreover, CBRE's analysis reveals that the majority of markets tracked (58 out of 69) demonstrated positive net absorption in Q2 2023. Notable mentions include Chicago with 4,600 additional units absorbed, Orlando with 4,100 units, and Denver with 4,000 units. These cities have exhibited resilience and remain attractive destinations for renters and real estate investors.

Examining the past four quarters, it becomes evident that the top five markets in terms of new deliveries have been New York, Washington, D.C., Dallas, Orlando, and Phoenix. Together, they accounted for 25% of the national total. This concentration highlights the continued appeal of these major metropolitan areas and emphasizes their potential for future growth and investment.

In terms of vacancy rates, nearly all markets (67 out of 69) tracked by CBRE exhibited rates equal to or above 3.0%, with 58 markets surpassing 4.0%. New York claimed the lowest vacancy rate at just 3.1%, which is below its historical average of 3.5%. This data points to a tightening rental market, potentially leading to increased rental values in the future.

The apartment markets across America are steadily stabilizing in 2023, with key indicators reflecting a recovery in the multifamily sector. CBRE's latest research showcases a rebound in absorption, modest vacancy rate increases, and steady rental growth. Regional variations provide insights into lucrative markets, while the concentration of new deliveries in specific areas highlights their potential for sustained development. With the construction pipeline adjusting to market demand, the supply of new units is likely to normalize, contributing to a balanced and resilient multifamily market.