U.S. Multifamily Apartment Rent Growth Slows in Q3, CBRE Report Shows

CBRE's latest research reveals that the U.S. multifamily market experienced healthy demand in Q3 2023, although rent growth slowed compared to previous highs. Explore the report's key findings, including increased vacancy rates, returning patterns of net absorption, and growth in new construction deliveries. Discover regional variations in rent growth and gain valuable insights into the multifamily sector's performance.

According to CBRE's latest research, the U.S. multifamily market maintained healthy demand in the third quarter of 2023, although rent growth experienced a slowdown compared to previous highs.

The report highlights key findings, including an increase in the multifamily vacancy rate, net absorption returning to typical seasonal patterns, and the growth of new construction deliveries. While rent growth varied across regions, the Midwest and Northeast/Mid-Atlantic regions stood out with positive year-over-year rent growth. Let's delve into the highlights and key insights from CBRE's Q3 2023 report on the multifamily sector.

Multifamily Vacancy Rate and Net Absorption

In Q3 2023, the multifamily vacancy rate inched up by 10 basis points (bps) quarter-over-quarter, reaching 5.1%. Although this increase was slower than in previous quarters, it reflects a return to more typical seasonal demand patterns disrupted by the pandemic. Notably, net absorption rebounded, with 82,100 units absorbed in Q3 2023, indicating a positive shift towards normalcy in the market.

Rent Growth and New Construction Deliveries

The average monthly net effective rent experienced a 0.7% year-over-year growth in Q3 2023. While this figure is lower than the pre-pandemic five-year average of 2.7%, it is significantly below the peak of 15.2% seen in Q1 2022. Furthermore, new construction deliveries hit a record high of 114,600 units in Q3 2023, contributing to a four-quarter total of 376,500 units. However, more moderate construction starts suggest a potential decrease in new deliveries starting in 2025.

Regional Insights and Market Highlights

The Midwest and Northeast/Mid-Atlantic regions outperformed others in terms of year-over-year rent growth across all markets in Q3 2023. The Midwest led with 3.0% rent growth, followed by the Northeast with 2.9%. On the other hand, the Southeast, South Central, Mountain, and Pacific regions experienced negative average rent growth. CBRE's data also revealed positive net absorption in most markets, with New York, Dallas, and Austin leading the way. Additionally, the top five markets for new deliveries—New York, Washington, D.C., Dallas, Austin, and Los Angeles—accounted for 25% of the national total.

Vacancy Rates and Market Performance:

The majority of markets tracked by CBRE, 66 out of 69, reported vacancy rates at or above 3.0%, with 60 markets surpassing 4.0%. Remarkably, New York stood out with the lowest vacancy rate at just 3.0%, below its historical average of 3.5%. These findings shed light on the varying performance of markets across the country and provide valuable insights for investors and industry professionals.

CBRE's Q3 2023 report on the U.S. multifamily market reveals continued demand, albeit with a slowdown in rent growth. The market's resilience is evident in the return to typical seasonal patterns for net absorption and the record-breaking number of new construction deliveries. While rent growth varied across regions, the Midwest and Northeast/Mid-Atlantic regions showcased positive year-over-year rent growth. As the market evolves, stakeholders can leverage these insights to make informed decisions and navigate the multifamily sector effectively.