The U.S. Multifamily Market Roars Back – What’s the Outlook?

The apartment industry endured a deep cut, but has experienced a fast recovery, evidenced in the considerable improvement in fundamentals. The ongoing rebound is downright astounding in many markets, which are seeing double-digit annual growth rates in areas that are making up for lost time.

Michael Cohen, vice president of advisory services at CoStar (CSGP) Group, shared these insights and more at the Apartments.com Learning Lounge at National Apartment Association’s 2021 Apartmentalize.

Strong apartment demand reflects the labor market recovery and search activity coincides with strong demand, as Apartments.com renter search activity is up well over 20% year-over-year.

The United States remains underhoused, boding well for renter demand moving forward. Low inventories in the for-sale market are forcing many would-be home buyers to rent. As usual, young households were the most likely to move.

This has helped push vacancies down and rent growth to rebound, especially in higher-end rent growth areas, where higher quality apartment communities look poised for near-term outperformance. Quarter by quarter, lease-ups are approaching previous strength.

However, concessions are still somewhat elevated in some areas (after peaking during the pandemic), as performance across building quality varies.

Inflation is a concern, particularly for construction costs, but is expected to moderate somewhat from current levels. This has been propelled by the additional stimulus and supply chain bottlenecks.

However, as supply chains work themselves out and the stimulus fades, tempered inflation is expected. The Core Producer Price Index, which excludes volatile food and energy prices, rose 0.3 percent in August, down from a 0.9 percent gain the prior month. Overall, producer prices were up 8.3 percent in August from a year earlier though, and up from 7.8 percent the month before. That’s the largest gain since the data was first collected in November 2010.

With the Delta variant still posing a threat, economic growth could still come under near-term pressure. But, workers are scarce, especially in low-wage industries. Optimistically speaking, current policy combined with increasing vaccination rates, potentially spurred in part by the latest vaccine mandates issued by the Biden administration, give hope for more stable future growth.

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