The Multifamily Book Is Closed On 2022–What’s In Store For 2023?

Multifamily rent growth had its second best year this century in 2022, though it finished the year on the downside due to weakening demand

Multifamily asking rent growth recorded its second best year this century in 2022, though it finished the year on the downside due to weakening demand and robust supply growth that has occupancy rates sinking, Yardi Matrix writes in a year-end report.

“What do we expect in 2023? Despite headwinds, the market has positive drivers,” Yardi Matrix writes.

Highlights of the report:

  • Multifamily rents fell again in December under the strain of weakening demand. U.S. asking rents dropped $4 during the month to $1,715, while year-over-year growth declined by 80 basis points to 6.2 percent, the lowest level since May 2021
  • For the full year in 2022, rents increased by 6.2 percent, the second-highest annual growth this century, only behind 2021’s growth of nearly 15 percent. With the market entering 2023 with a variety of concerns about the economy and affordability, we expect rent growth in 2023 will be closer to historical levels.
  • Deceleration is also hitting the single-family rental market. The average U.S. asking rent dropped $8 in December to $2,083, while the year-over-year increase fell by 100 basis points to 4.8 percent.
Chart courtesy of Yardi Matrix

The 2023 National Market To Behave More Traditionally

“Asking rents should remain flat or fall slightly through the spring, when growth typically is strongest,” Yardi Matrix writes. “Then rents will rise moderately, though nowhere near the outsize levels of the last two years.”

The 2023 outlook however is influenced by demand and supply issues in many markets as demand for apartments is declining for several reasons:

  • The economy is cooling
  • Excess household savings are depleted
  • Affordability is stretched
  • The post-pandemic migration is played out

“Despite headwinds, there are positive forces that will keep the industry healthy in 2023,” the report says.

The story on lease renewals

Nationally, renewal rents were still surging in the fall, rising 11.8 percent year-over-year through October, up 30 basis points from September. The growth reflects property owners continuing the process of bringing rents of existing tenants closer to asking rates.

“October’s renewal rate growth is likely at or near its apex, since asking rents have been negative since November,” the report says.

National lease renewals were 64.9 percent in October, down slightly from the prior month. Renewal rates have settled into a range near 65 percent after peaking in the fourth quarter of 2021. Lease renewal rates varied much by metro, led by Philadelphia (77.8 percent) and Baltimore (70.2 percent), while they were less than half in San Francisco (48.5 percent) and Los Angeles (49.3 percent).

Chart courtesy of Yardi Matrix

Reaction to Changing Conditions

Yardi Matrix writes that the biggest issue is how multifamily fundamentals will react to higher short-term interest rates in the post-pandemic world.

  • The multifamily market is starting the new year with rapidly evolving conditions that in some ways are unprecedented.
  • The multifamily industry reaction to the rapid increase in interest rates and resulting weakening of the job market will be closely watched.
  • 2023 could see weaker household formation and demand. Meanwhile, transaction activity will be affected by uncertainty about values.

“Multifamily performance in 2023 will be studied for many years because it is at the intersection of multiple trends involving the economy, rents, demand and the capital markets,” the report says.

Read the full report from Yardi Matrix here

About Yardi Matrix

Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.

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