Multifamily Market Shows Signs of Stabilizing

After the last few years of rocketing growth and dramatic declines, is the multifamily market on track to stabilize? With rent growth normalizing and the trajectory of vacancy rates beginning to flatten, a less turbulent period may be ahead.

Let’s dive into the latest CoStar data from the third quarter of 2023.

Rent growth begins to level out

During the COVID-19 pandemic, the multifamily industry saw some of the largest gains ever in terms of rent growth. With renters packing up and moving within and across state lines at record levels, apartment owners and operators reaped the benefits.

After a brief dip in 2020, rents took off in 2021, doubling and tripling at the national level. At its peak, year-over-year rent growth soared into double digits in the first quarter of 2022.

Year-over-year rent growth soared to a peak of 10.68% in the first quarter of 2022.

Since that peak, rent growth has been on the decline. Growth in national 12-month asking rent is currently well under 2 percent, and the dramatic spikes and drops seen in the last few years have been replaced with smaller quarter-to-quarter shifts.

The rapid quarterly fluctuations in rent growth seen between 2020 and 2022 have made way for more incremental changes in 2023.

Vacancy rates settles into a new normal

Before the pandemic, vacancy rates stayed relatively stable, between 6 and 7 percent. Quarterly differences maintained a consistent range between negative and positive 5 percent.

During the pandemic-induced turbulence in the market, vacancy hit a record low when it dropped under 5 percent in the third quarter of 2021.

In the third quarter of 2021, vacancy rates hit a record low below 5 percent.

2023 has seen vacancy rates hover around 6 and 7 percent, with minimal change quarter to quarter. This trend could indicate that the swings in vacancy have begun to moderate.

While still higher than pre-pandemic historic averages, vacancy is now stabilizing around 7 percent.

Market volatility appears to ease

Will these stabilizing trends continue? This remains to be seen, but if the current trajectory continues, the headwinds facing the multifamily industry may be gradually easing. Though much lower than past performance, rent growth appears to be settling into a new normal, while vacancy rates are also beginning to stabilize. After the dramatic upswings and downswings of the pandemic years, this moderation could offer some much-needed relief.