Multifamily sector ‘a mixed bag’ as rent gains persist, but remain tepid

Active delivery pipeline counterbalancing strong demand to curb rent gains

Yardi Matrix’s Multifamily National Report for May succinctly called the month’s performance “a mixed bag,” with the fourth consecutive month of rent gains, albeit slim.

The average multifamily asking rent nationwide grew to $1,733 in May, up $6 month over month and a tepid 0.6% year over year. Rents continue to increase in a normal seasonal pattern as demand remains healthy on an ongoing basis, but those factors are counterbalanced by a stout pipeline of deliveries in many areas to lower the rent growth ceiling.

The Sun Belt, in particular, is seeing deliveries blunt the pace of rent gains. In May, nine of the top 30 rental hubs tracked by Yardi Matrix have annual rent growth of -1.5% or worse; all nine are Sun Belt metros that are growing rapidly and whose development have attracted robust delivery pipelines.

Yardi expects the pipelines in each of those cities to continue cranking out deliveries at a strong clip until at least the end of next year, so even though every one of those markets has seen strong absorption of late, the ongoing influx of supply has eaten away at occupancy rates and rent growth in the near term.

The good news, at least, is that demand has stayed strong and appears set to continue to do so. Job growth is starting to cool, but the employment market remains strong. High interest rates have obviously also kept many on the homebuying sidelines, keeping the rental pool firmly well-populated.

Those interest rates, granted, are a double-edged sword in their own right, acting as a tailwind for rents but a headwind for deals. Transaction activity is still weak, according to Yardi, with sales down over 20% on an annual basis. Investors on the lookout for deals may have to consider “creative alternatives,” per Yardi, like distressed properties, underserved markets and niche property segments. Meanwhile, property owners must grapple with potentially refinancing deals in a lending landscape that hasn’t seen the rate-lowering cycle kick in yet, all while dealing with rapidly mounting expenses.


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