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New Reports Indicate Multifamily Sector Returning to Normal

CBRE and Yardi Matrix each released data that shows improved fundamentals

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A pair of research reports indicate that the multifamily sector is stabilizing and providing some level of normalcy for investors in the early months of 2023. 

New data from Yardi Matrix and CBRE (CBRE) highlights a slight increase in national rents over the last month and points to an ease in vacancy rates and an upward trend in absorption for the product as the year goes along. 

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Yardi Matrix reported that nationwide rental rates increased by 0.25 percent in March, more than doubling the month-over-month average increases seen from January to February and signaling an acceleration from the previous months’ averages, but nothing close to the pre-pandemic and pandemic-era standards of increases.

National rents increased 22 percent between March 2020 and April 2023, while slowing down slightly in the last year, increasing only 3 percent from April 2022 to April 2023, according to Yardi Matrix. 

“Pre-pandemic things were up 21 percent, and what we’re seeing now is a reduction going down to where rents are increasing only slightly,” Doug Ressler, researcher and media professional at Yardi, said. “Our national average right now is 4 percent.” 

Ressler said the return of more normal monthly rent increases will create a more predictable market for investors to price cap rates. 

“You’re somewhere around 4.5 percent [for multifamily cap rates] and that’s with a lease risk, so you’re looking at rental income that’s sustainable, and you’ve got good revenue growth and at the same time it has long legs to it,” Ressler explained. “That’s because the demand is continuously being refreshed. We’re looking at 95 percent occupancy [nationally], though that varies by market.”

By the same token, CBRE pointed to a deceleration of vacancy rates and an upward trend in absorption rate data as evidence that the sector is stabilizing after three years of COVID-induced upheavals. 

The overall multifamily vacancy rate increased by 30 basis points quarter-over-quarter to 4.9 percent, according to CBRE research, though this is far less than the 70 basis point increase that occurred between third quarter and fourth quarter of 2022, and the 90 basis point jump seen in second quarter of 2022. 

“We’re beginning to stabilize, or rather the fundamentals are stabilizing, but we’re not all the way there,” said Matt Vance, CBRE senior director of Americas multifamily research. “We’re not stable, vacancy is still rising, demand was essentially flat in first quarter 2023, but it is trending in the right direction. But we believe these fundamentals are heading in the right direction.”

Vance also noted that demand for multifamily is turning positive, as shown by an improved standing of a stubbornly negative net absorption rate, which improved from a negative absorption of 14,000 units in fourth quarter 2022 to a negative absorption of 1,900 units in first quarter 2023. 

“Demand is turning positive as we speak,” Vance said. “We’re seeing it anecdotally with our owner-clients, and we’re seeing it as far as the statistics are trending.”

Vance also noted that the second quarters and third quarters of the year are the strongest quarter for apartment leasing, due to the seasonality of apartment rentals and moving patterns, which also bodes well for sector demand. 

“There’s a seasonality in apartment fundamentals that don’t exist in other sectors, save for hospitality,” he said. “People don’t like to move during the holidays or during the winter. So we expect demand to trend positively.”  

Brian Pascus can be reached at bpascus@commercialobserver.com