How busy were multifamily developers last year? They added more than 416,000 new apartment units to the United States’ multifamily supply in 2023, including a record-setting number of new units in the fourth quarter.
That’s the big takeaway from CBRE’s U.S. fourth-quarter multifamily market report, a report that highlights an apartment sector that is still booming despite the challenges brought by higher interest rates and persistent inflation.
As the CBRE research shows, demand remains high for modern multifamily units. And that demand isn’t about to slow as higher mortgage interest rates push many potential homebuyers out of the single-family housing market.
According to the latest numbers from CBRE, the multifamily market in the United States witnessed a significant surge in new construction deliveries throughout 2023. The high number of new units did bring about one negative stat for apartment owners: Multifamily rent growth did slow in 2023, largely because of all the new supply.
In the fourth quarter of 2023, new apartment construction deliveries soared to a record high of 140,800 units, contributing to an impressive four-quarter total of 416,500 new units.
Don’t, though, expect a similar surge in 2024. CBRE said that fewer construction starts in the last half of 2023 means that developers will bring fewer new multifamily buildings in 2025.
The multifamily vacancy rate experienced a slight uptick in the fourth quarter, rising by 20 basis points quarter-over-quarter to 5.4% by the end of 2023. Despite this, net absorption in the fourth quarter of 2023 was strong, reaching 84,800 units, marking a performance more than four times the pre-pandemic fourth-quarter average.
“Record new construction was met with robust renter demand in the fourth quarter,” said Kelli Carhart, leader of Multifamily Capital Markets for CBRE.
Carhart said that she anticipates an upturn in investment activity in the multifamily market, most likely starting in the second quarter. This uptick will be driven by potential rate cuts by the Federal Reserve, which are expected to improve capital market conditions, Carhart said.
Additionally, an increase in loan maturities should create transaction opportunities for investors focusing on distressed assets.
The average monthly net effective rent saw a modest year-over-year growth of 0.4% in the fourth quarter of 2023. This growth rate stands significantly lower than the pre-pandemic five-year average of 2.7% and is notably below the peak of 15.2% recorded in first quarter of 2022.
The Midwest and Northeast were the sole regions to experience positive year-over-year rent growth across all markets. The Midwest led with 2.7% growth, slightly down from 2.9% in the third quarter of 2023, followed by the Northeast with 2.4%, also down from 2.9%.
Among the 69 markets tracked by CBRE, 56 reported positive net absorption in the fourth quarter of last year, with New York (8,800 units), Austin (6,700 units) and Atlanta (6,000 units) leading in absorption.
The top-five markets for new apartment deliveries in 2023 — New York, Dallas, Austin, Houston, and Atlanta — made up 27% of the national total.
A total of 68 out of the 69 markets monitored by CBRE had vacancy rates at or above 3%, with Madison, Wisconsin, boasting the lowest vacancy rate at just 2.8%.
