Commercial Real Estate News
U.S. Apartments Still Enjoy Healthy Demand in Q3
Yet Rental Growth Slows in 2023
According to new CBRE research, the U.S. multifamily market continued to see healthy demand in the third quarter of 2023, though rent growth slowed from previous highs.
The multifamily vacancy rate inched up by 10 basis points (bps) quarter-over-quarter to 5.1% in Q3 2023. This was a slower increase than the 30 bps in Q1 2023 and matches the 10 bps rise in Q2 2023. Net absorption climbed to 82,100 units in Q3 2023, indicating a return to more typical seasonal demand patterns which the pandemic had disrupted in 2021 and 2022.
"Renter demand remained healthy through the third quarter, largely offsetting record new construction," said Kelli Carhart, leader of Multifamily Capital Markets for CBRE. "We anticipate investment activity to pick up mid-2024, driven by an end to the Fed's rate hiking cycle and improved capital markets conditions, as well as loan maturities that will create transaction opportunities."
The average monthly net effective rent grew 0.7% year-over-year in Q3 2023, lower than the pre-pandemic five-year average of 2.7% and well below the peak of 15.2% in Q1 2022.
New construction deliveries reached another high of 114,600 units in Q3 2023, bringing the four-quarter total to a record 376,500. More moderate construction starts point to fewer new deliveries starting in 2025.
Other Q3 2023 Multifamily Sector Highlights:
- The Midwest and Northeast/Mid-Atlantic regions were the only two regions to see year-over-year rent growth across all markets in Q3 2023. The Midwest led with 3.0% (down from 4.3% in Q2 2023), followed by the Northeast with 2.9% (down from 4.3%). The Southeast, South Central, Mountain and Pacific regions all experienced negative average rent growth.
- Most markets (58 out of the 69) tracked by CBRE recorded positive net absorption in Q3 2023, led by New York (6,200 units), Dallas (6,000) and Austin (5,300).
- The top five markets for new deliveries over the past four quarters--New York, Washington, D.C., Dallas, Austin and Los Angeles--made up 25% of the national total.
- Almost all markets (66 out of 69) tracked by CBRE had vacancy rates at or above 3.0%, with 60 markets exceeding 4.0%. New York had the lowest vacancy rate at just 3.0%, below its historical average of 3.5%.
