Finance  ·  Analysis

Multifamily Rents Rise Nationally as Immigration, Insurance Push Costs Higher

A new report from Yardi Matrix found rents have increased in New York and New Jersey, but the Sun Belt is being strained by expenses

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Buoyed by strong employment metrics and low housing supply, the nation’s multifamily market remains healthy as rent growth and occupancy remain strong even in the face of high interest rates. But rising expenses could strain the finances of operators in the multifamily sector. 

This is the conclusion made by Yardi Matrix, a CRE data research firm that published its national multifamily report summarizing the sector’s performance in the first six months of 2024. 

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Yardi matrix found that the average U.S. advertised rent increased 3.1 percent year-over-year to $1,789, with the strongest annual rent growth occurring in New York City (5 percent), Kansas City (3.4 percent), Columbus, Ohio, (3.2 percent) and across New Jersey (3.1 percent).  

The nation’s occupancy for multifamily stands at a healthy 94.5 percent, down less than 1 percent from where it was this time last year. Of all major cities, only Las Vegas increased its occupancy year-over-year. Moreover, national absorption remained positive with the market on track to absorb an impressive 300,000 units in 2024. 

“The occupancy is looking good, absorption is really hanging in there — in fact, it’s increasing — and we’re actually seeing lease renewals, as people just aren’t moving as often,” said Doug Ressler, a manager of business intelligence at Yardi Matrix and an author of the report. 

The positive rent growth and occupancy statistics are largely due to the numerous tailwinds that have created a strong network of fundamentals working in favor of the asset class. The multifamily sector has been aided in the last year by record levels of foreign immigration, a nationwide housing shortage, and low amounts of single-family home sales, all of which have pushed both bodies and dollars into rental apartments and communities, according to Yardi Matrix. 

“You have to say, ‘What is the alternative, go buy a house?’ Sure, if you can find one and if you can afford one,” said Ressler. “Housing starts have declined and permitting has declined, and the interest rates are still above 7 percent.”

Reseller said that record levels of documented and undocumented immigration will impact the nation’s rental market in the years to come. 

“Immigration, regardless of whether you’re red, blue or purple, will push the rental market for greater use, greater consumption and higher demand over the next five to six years,” he said.  

However, this rent growth must be compared to the boom years that occurred in multifamily following the peak of the pandemic in 2021 and 2022 — two years that saw national multifamily rents rise by an average of 6.1 percent in the first six months of their respective calendars. 

The inability of 2024 rents to match the post-pandemic period falls largely on the shoulders of single-family rentals. The average single-family rental unit declined $3 per month on the year to $2,166, while year-over-year rent growth in the asset class declined by 1.1 percent. Even so, occupancy for single-family rentals stands at 95.4 percent, higher than the national average for multifamily units. 

And even though the national absorption rate stands at 300,000 units, it’s still a far cry from the 600,000-unit absorption rate the nation experienced in 2021.  

“The problem is the new buildings are having trouble leasing up, but that will change. As new buildings get flushed out they will offer concessions to be able to attract people in, and you’ll see that absorption rate go up,” explained Ressler.   

Several cities — particularly those within the Sun Belt states of the South and Southwest — have experienced negative rent growth in the last year. Average rents have declined in Austin by 6.5 percent, in Atlanta by nearly 4 percent, and in Raleigh, N.C., by just over 3 percent. 

These Sun Belt cities are uniquely threatened by the rise in expenses used to maintain the asset class, according to Yardi Matrix. 

Using data from 20,000 properties within its portfolio, Yardi Matrix found that expenses per multifamily unit nationally rose by 8 percent year-over-year to nearly $9,000 in 2023, and had already increased by just over 8 percent in 2022. These expenses have been driven largely by property insurance — the cost of which has increased almost 30 percent in the last year — as well as the costs of marketing, administration and maintenance of building units.  

“Insurance is the primary mover on this thing — insurance costs for property managers and apartment renters is still the prime expense item going forward,” said Ressler. “Nevertheless, the rents are decelerating. They’re being tamped down because new supply is coming online now.” 

These rising expense costs have come at a time when rent growth is nowhere near what it had been in the early part of the decade, and the debt serviced by many multifamily sponsors has been handicapped by higher interest rates and cap rates, and rapidly increasing debt service costs. 

“But with rent growth cooling and Matrix forecasting 560,000 deliveries nationally this year, income growth is no longer a given,” according to the report. “Weak growth should continue the rest of the year, especially in Sun Belt markets such as Austin, Nashville, Orlando, Phoenix and Charlotte that have a large delivery pipeline and falling occupancy rates.” 

Brian Pascus can be reached at bpascus@commercialobserver.com.