There is a record amount of new apartment supply coming in 2024 that will limit rent growth, Yardi Matrix says in a special multifamily rent report.
However, it might take a year or two for some markets that are doing well handling the new supply to absorb all the new units.
“The main story of 2024 will be one of record supply coming online that will depress rent appreciation in many of the markets that saw explosive growth during the pandemic, and a handful of markets could end the year in negative growth territory,” writes Andrew Semmes, Senior Research Analyst for Yardi Matrix, in the report.
The new apartments coming online are almost all in the higher-level, more luxury apartments called Class A properties, directly in competition with one another.
“So, we expect to see less growth in asking rents at the top of the market, and stronger growth in workforce and renter-by-necessity units,” Semmes says.
Asking rents versus in-place rents
The second trend Yardi Matrix sees coming in 2024 is the gap closing between asking rents and in-place rents.
“Asking rents are almost a perfect leading indicator of in-place rents, and most markets still have a large gap between the two, which will continue to shrink as asking rent increases remain muted in the near term,” Semmes says.
Rent increases have been tamed and supply absorption will take time
Semmes says the rent increases that occurred in 2021 and 2022 has been tamed.
“We expect modest growth of 0.8%— with large variance across markets and time—in average national asking rents in 2024 as a historically large amount of supply gets added to the housing stock.
“It will take time for that supply to be completely absorbed, but it will get absorbed, and once that occurs, we expect a return to the usual 3-4% yearly growth in asking rents that we experienced before the pandemic,” he writes.