Rent growth remained in the double digits in August, but the average asking rent marked the first month-over-month decline since June 2020.

Report highlights:

• Rent growth moderated in the final month of the summer, still up 10.9% on a year-over-year basis, to $1,718, but marking the first month-over-month decline since June 2020.
• With population growth decreasing, the main demand drivers are in-migration and household formation—occupancy remained at 96% for the fifth straight month in July.
• Renter-by-Necessity units continued to lead rent growth—up 0.2% in August—while Lifestyle rents posted a 0.2% contraction.
• Rent growth in the SFR sector fell in the single digits, up just 9.5%, down $2 to $2,090 in August; occupancy declined by 1% in July.

Rent Growth Posts Weakest Performance Since June 2020, Still Up 6.6% Year-to-Date

The national multifamily market ended its long run of unprecedented growth in August, when the average asking rent declined $1 to $1,718. Even so, the annual rent growth was still in the double digits, up 10.9%, while year-to-date growth posted a solid 6.6%, higher than any year prior to 2021. The strongest gains were registered in the Sun Belt—Orlando (16.9%), Miami (16.7%) and Nashville (14.8%), but these rates are 7 to 8 percentage points over the last two months, which is also a sign that affordability is intensifying.

Behind the softening is seasonality paired with slowing migration and the cooling economy. The impact is greater at this point because it succeeds unprecedented increases. On a first glance, this moderation in the housing market aids demand, but looking closer, rent declines were concentrated in the upscale Lifestyle properties, not in the Renter-by-Necessity segment.

Occupancy Marks Fifth Consecutive Month Above 96%; RBN Rents Remain in the Lead

The occupancy rate remained at 96% for the fifth month in July, with large variations among metros: the largest increases were registered in San Jose (1.5%), Chicago and San Francisco (each 0.8%) and New York (0.6%), and the largest contractions in Las Vegas (-1.8%), Phoenix (-1.4%) and Sacramento (-1.0%).

On a monthly basis, national asking rents contracted 0.1%, with RBN rents up 0.2% and Lifestyle rents down 0.2% in August. Asking rents increased in just 10 of Yardi Matrix’s top 30 markets in August, led by Philadelphia, San Francisco and Nashville (0.5% each), followed by New York and Miami (0.3% each). The largest decreases in asking rents were in Raleigh (-1.3%), Seattle (-1.1%) and the Inland Empire and Las Vegas (each -0.8%). Rent growth skewed negative due to contractions in the Lifestyle segment, present in 21 of Yardi Matrix’s top 30 metros.

Migration and Household Formation Drive Demand

Immigration dropped to 247,000 in 2021 from more than 1 million in 2016, according to the U.S. Census Bureau, and the pandemic created new migration trends—from high-cost states with large urban centers such as California, New York and Illinois—to state in the Sun Belt and Southwest. This was possible as some remote workers are no longer tied to offices and people search for lees expensive housing.

Interestingly, population decline occurred in most urban areas, even in fast-growing states. As shown by a Harvard Joint Center for Housing Studies report, of the 68 counties in the U.S. with at least 1 million people, 58 (85%) had net outflows in 2021, while 80% of counties in the outlying parts of these large metro areas had net inflows.

SFR Sector Mirrors Multifamily Industry, Rent Growth Moderates

The asking rent for the single-family sector rose 9.5% year-over-year, to $2,090, which translate into a 170-basis-point drop from July ($2). Of the top 35 markets tracked by Yardi Matrix, in 17 rents rose by 10% or more on an annual basis as of August. The highest increases were recorded in Washington, D.C. (40.1%) and Orlando (39.6%).

Occupancy rates also posted minor declines—the national rate was down by 1% on a year-over-year basis through July—increasing in only nine of the top 35 Yardi Matrix metros. Despite the moderation in rent growth and the occupancy deceleration, higher financing costs and fewer home sales are likely to sustain demand for SFRs.

Read the full Matrix Multifamily National Report-August 2022

The post [August 2022] National Multifamily Market Report appeared first on Yardi Matrix Blog.

Economy and demand soften, but rent growth remains in the double digits and occupancy at 96%.

Report highlights:

• Mid-summer, the national average asking rent rose 12.6% on a year-over-year basis, to $1,717; this marks the fifth consecutive month of deceleration and the lowest increase since January.
• The supply-demand imbalance has been a major demand driver, the U.S. dragging a 600,000-unit apartment shortage; last year’s outstanding rent growth resulted from record-high absorption, which halved in 2022.
• Renter-by-Necessity units took lead again in rent growth; for the third month straight
• Occupancy remained at 96% in June, kept there by declines in high-growth markets and increases in coastal metros.
• The SFR sector posted rent growth of 11.2% year-over-year, to a new high of $2,092; occupancy declined by 30 basis points in June.

Rent Growth Moderates as Economy and Demand Soften, Remains Lofty by Historical Standards

The national multifamily market continued to improve but at a softer rate. The average U.S. asking rent rose by $10 to $1,717 in July, marking the fifth consecutive month of deceleration and the lowest increase since January. Year-over-year, the rate declined to 12.6%, 260 basis points below the 15.2% February peak. Florida markets remained in the lead in rent gains—Orlando (20.2%), Miami (19.5%) and Tampa; San Francisco (9.0%), Baltimore (8.4%) and the Twin Cities (4.2%) posted the lowest rent increases.

The downward trend is attributed to an inevitable return to the mean combined with the slowing economy. Last year’s record rent growth resulted from record-high absorption (580,000 units), while this year, absorption has fallen in line with a typical healthy year, which is about half 2021’s pace. In addition to the slowing economy, consumer confidence in waning as the Federal Reserve has kept rising policy rates attempting to slow inflation.

Occupancy Remains at 96.0% for the Third Consecutive Month

Although nationally occupancy remained at 96.0% for the third straight month, on a metro level, the landscape is quite dynamic. The rate is dropping in some high-growth metros, likely due to significant volumes of new deliveries combined with a reduction in net migration. In gateway/coastal metros, occupancy is rising, holding the top seven slots in year-over-year growth. In four of these, occupancy rose by 100 basis points or more: San Jose (1.7%), New York, Chicago and San Francisco (all 1.0%). San Jose posted the strongest absorption—the occupancy rate climbed to 96.7% with last year’s deliveries amounting to 3.2% of stock.

On a monthly basis, national asking rents rose 0.6%, 60 basis points below the June rate. Rent growth was positive in 25 of Yardi Matrix’s top 30 metros in July, led by Raleigh (1.4%), Orange County (1.4%) and Atlanta (1.2%). At the opposite end of the ranking were Orlando (-0.1%), Miami and the Twin Cities (-0.3% each), and the Inland Empire (-0.6%).

Supply-Demand Imbalance Sustains Growth

Hoyt Advisory Services conducted a new study on behalf of the National Multifamily Housing Council and the National Apartment Association and found that the U.S. currently has a shortage of 600,000 units. Another 3.7 million units are needed through 2035 to meet demand. The study took into consideration social factors impacting demand such as delayed marriage and childbearing, as well as the increased age of first-time homebuyers.

Yardi Matrix tracks nearly 1 million units under construction and forecasts some 400,000 deliveries annually for several years. The volumes sound promising but also point to a lengthy process in solving the nation’s housing shortage. Among the proposed solutions are density bonuses for projects with affordable components, tax abatement to rehabilitate older housing and expediting approvals for affordable housing.

SFRs Make the Best of Interest Rates Hikes

The asking rent for the single-family sector rose 11.2% year-over-year, or $7, to $2,092 in July. The rate marks a 60-basis-point decrease from June. Of Yardi Matrix’s top 35 metros, 21 posted rent growth of 10% or more, with Orlando (43.3%), Nashville (21.5%) and Miami (20.0%) in the lead. Occupancy decreased by 30 basis points year-over-year in June, as the rate fell in 24 of the top 35 metros.

Demand is expected to remain strong as the rising mortgage rates postpone home buying plans for many. Still, the SFR sector is likely to be impacted by rising interest rates as higher financing costs and fewer home sales will dampen the acquisition pipeline. Rent growth is also expected to keep softening as the economy weakens.

Read the full Matrix Multifamily National Report-July 2022

The post Multifamily Market Outlook – July 2022 appeared first on Yardi Matrix Blog.

Rising inflation and interest rates dampen transactions, but annual rent growth remains in the double digits in June.

Report highlights:

• At the mid-year point, the national average asking rent growth softened to 13.7% year-over-year, to yet another all-time high average of $1,706; rents gained $73 since the start of the year.
• Household formation is the main driver for rental demand, especially with rising inflation and interest rates, which have dampened transaction activity and kept more residents in the rental markets.
• Lifestyle rents continue to remain slightly above Renter-by-Necessity; occupancy stood at 96% in May, with the rate still on a recovery trend in the larger metros that lost significant population during the pandemic.
• The SFR sector mirrors the multifamily industry, with rents up just 11.8% year-over-year to an all-time high od $2,071; occupancy lost just 10 basis points.

Alongside the Economic Cooldown, Rent Growth Softens, But Remains Elevated

As anticipated, the national multifamily market exhibited signs of dampening in June, when it marked the fourth straight month of rent deceleration. Even so, it performed remarkably well, with average asking rent up 13.7% year-over-year, or another $19, to $1,706. This translates into a 3.3% increase during the second quarter and 5.7% since the start of the year. Nationally, asking rents increased $73 year-to-date.

Florida markets maintained leading positions in year-over-year increases, with Orlando (24.0%), Miami (23.4%) and Tampa (20.3%) on top. Bottom ranking metros kept a steady recovery pace, too: San Francisco (9.7%), Baltimore (9.4%) and the Twin Cities (5.1%). Asking rents increased 10% or more in 25 of the top 30 markets.

With the economy on a softening trend, rent growth will be sustained by the robust labor market, albeit at a slower pace. In addition, inflation and rising interest rates are already hitting the brake on investments, keeping more households in the rental markets.

Occupancy Improves in Gateway Markets, Slides in High-Growth Metros; Lifestyle Maintains Lead over RBN

Overall, occupancy stood at 96% in May, with the year-over-year rate declining in 11 metros led by Las Vegas (-1.6%), Phoenix (-1.1%), Sacramento (-1.0%) and the Inland Empire (-0.8%), pointing to a weakening in in-migration, which could eventually lead to a drop in rent growth. Best performing metros in occupancy were San Jose (2.0%), New York (1.5%) and Chicago (1.4%).

On a monthly basis, national asking rents rose 1.1%, on par with May. All metros reported rent increases, with San Jose (2.1%), Raleigh (1.9%) and Seattle (1.8%) leading the ranking. The lowest increases month-over-month were in the Twin Cities, Phoenix and New York (each 0.6%). Overall, 19 of Yardi’s 30 metros registered gains of at least 1.1%.

Lifestyle rents increased 1.2% in June, 10 basis point above Renter-by-Necessity rents. All metros saw rent increases in both property segments. Leaders is increases in both categories were San Jose (2.1% Lifestyle, 1.9% RBN), Raleigh (1.9% Lifestyle, 1.7% RBN), Seattle (1.9% Lifestyle, 1.5% RBN) and Orlando (1.7% Lifestyle, 1.5% RBN).  

Demand for SFRs Intensifies

The asking rent for the single-family segment rose 11.8% year-over-year in June, 90 basis points below May. This represents a $23 increase, to an all-time high of $2,071. Increases above the 20% mark were reported in four metros Orlando (46.7%), Miami (25.9%), Nashville (23.0%) and Toledo (22.5%). On a month-over-month basis, asking rents rose 1.1%, on par with multifamily rents. Meanwhile, occupancy decreased just 10 basis points, with eight metros posting increases of at least 10 basis points.

Homeownership becomes harder to attain in an economic environment where inflation and interest rates are rising, and this improves demand for SFRs. This is also altering the demographic of the average SFR tenant, with millennials and blue-collar workers with children and pets making up the majority of the renter demographic.

Download the full Matrix Multifamily National Report-June 2022

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Increased interest rates affect property values and turn investors cautious, but overall, the multifamily industry continued its strong performance in May.

Report highlights:

• Well into the second quarter, the national average asking rent rose 13.9% on a year-over-year basis, to a new all-time high of $1,680; so far in 2022, rents gained $70.
• Demand remained high, despite the slowing economic growth and rising concerns about gas prices and inflation; the surge in interest rates makes investors cautious and impacts property values.
• Lifestyle rents regain lead over Renter-by-Necessity; occupancy data shows gateway metros continue to rebound, while high-growth metros signal a moderation in demand.
• Strong demand for SFRs sustains the single-family rental sector, with rents up 12.7% year-over-year; occupancy slid 20 basis points.

Rent Growth Well Above All Other Previous Years Except 2021; Occupancy Up in Gateway Markets, Down in High-Growth Metros

Expectedly, the national multifamily market remained on a softening trend compared with the performance exhibited throughout 2021 but remained exceptional. The average asking rent rose 13.9% year-over-year, or $19, in May, to $1,680. The rate is 40 basis points lower than April’s, 3.0% over the past three months and 130 basis points below the peak last summer. Since the start of the year, the national average rent increased by $70.

Florida metros held the lead in year-over-year rent increases: Miami (24.2%), Orlando (23.2%) and Tampa (21.6%). Asking rents increased by at least 10% in 23 of the top 30 markets. Bottom-ranking positions were occupied by Baltimore (9.1%), San Francisco (8.7%) and the Twin Cities (5.2%).

Recovery continues in gateway markets, with occupancy highest in New York (2.1%), San Jose (2.0%) and Chicago (1.5%). Meanwhile, high-growth markets including Las Vegas (-1.1%), Phoenix and Sacramento (each -0.7%), posted declines in occupancy, signaling an easing of demand. Overall, the occupancy rate dropped in seven metros in April.

Unstable Demand Across Property Segments, Lifestyle Rents Regain Lead

On a monthly basis, national asking rents rose 1.1%, 20 basis points above April. Growth was led by Lifestyle rents, up 1.2% in May, 20 basis points above Renter-by-Necessity rents. Lifestyle units led in month-over-month rent growth in 29 of 30 metros.

Gains were led by San Jose (2.2%), the Inland Empire (2.1%) and Seattle (2.0%). Among the low performers were Phoenix and New York (each 0.1%) and Boston (0.3%). Coastal metros led in both Lifestyle and RBN rents: The Inland Empire (2.5% Lifestyle, 1.6% RBN), San Jose (2.2% Lifestyle, 2.1% RBN), Charlotte (1.9% Lifestyle, 1.8% RBN) and Seattle (1.9% Lifestyle and RBN).

Economic Uncertainty Impacts Multifamily; Investor Caution Slows Transaction Activity  

Decelerating economic growth, concerns about gas prices and inflation have not dampened multifamily demand but are some of the main headwinds for the industry. The Federal Reserve raised policy rates to limit inflation, with the 10-year Treasury surpassing 3% for the first time since 2018 and priced to yield roughly 2.75% at the end of May, which is 125 basis points above January levels. The trend is anticipated to continue throughout the year. This is especially important to the commercial real estate industry, as it is financed with substantial amount of debt, which makes it highly sensitive to interest rate hikes.

Meanwhile, borrowing costs increased alongside Treasury yields rises; rates are now 125 to 150 basis points higher than most multifamily loans originated before the surge, which carried coupons of 2.75% to 4.25%. Floating-rate debt also more expensive and acquisition yields—averaging 4.5% presently—will surely rise if debt costs remain at higher levels. All these contribute to a softening in transaction activity. Financing is increasingly scarcer, deals with aggressive bids fail. Property values decreased 10-15%, following a 20% appreciation in 2021. However, the change in pricing is hard to accurately describe as many sellers chose to hold the assets rather than sell.

SFR Sector Remains Attractive

The asking rent for the single-family segment rose 12.7% year-over-year through May, 50 basis points below the April rate with Orlando (49.5%), Miami (28.0%) and Toledo (21.5%) in the lead. Nationally, the occupancy rate decreased 20 basis points, marking increases in just 10 of Yardi’s 33 markets.

Demand remains robust in the sector, sustained by competition from institutional investors and increased preference for suburban housing. Moreover, rising rates affect home sales, postponing the homeownership dream for many. Investment and development continue to rise, boosted by the number of investors entering the sector.

Read the full Matrix Multifamily National Report-May 2022

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The multifamily industry posted another slight softening, but still remains in high gear.  

Report highlights:

• At the beginning of the second quarter, the national average asking rent rose 14.3% on a year-over-year basis, to a new record of $1,659; since the start of the year, rents gained $50.
• Deceleration will intensify, caused by the softening of the U.S. economy, surging inflation, supply chain issues, rising interest rates and the shrinking business inventories.
• Renter-by-Necessity rents surpassed the Lifestyle segment; Nashville and Orlando illustrate the best this reversed dynamic.
• The single-family rental sector marked another strong month in rent growth, up 13.2% year-over-year, to $2,018—an all-time high.

Two Months Into Spring Leasing Season, the Multifamily Market Continues Stellar Performance

Even with the recent disturbances in the U.S. economy, the national multifamily market continued unabated. The average asking rent rose $15 to $1,659 in April, which represents a 14.3% year-over-year increase and another 50 basis points below the previous month. During the first four months of the year, the national average rent increased by $50. Asking rents increased by 20% or more in five of the top 30 metros and 10% or more in 26 of these metros. Miami held leading position (24.6%) but also posted a 1.7% decrease from March. Orlando, Tampa, Las Vegas and Phoenix completed the top five. Even bottom-ranking metros posted significant performance: Baltimore (9.3%), Kansas City and San Francisco (8.8%), and the Twin Cities (4.7%).

The moderation that infiltrated at the start of the spring seasonal growth will remain present and even intensify, due to a rising number of factors: The slowdown in the U.S. economy—which contracted by 1.4% in the first quarter of 2022, and which will likely continue to soften as the Federal Reserve is expected to maintain its tightening policies—surging inflation, ongoing supply chain issues, shrinking business inventories and the virus.

Demand remains healthy and appears to be stable enough to withstand a modest economic slowdown. In addition, the employment market is recovering, and consumer spending posted an increase during the first quarter, which points to consistent household finances. Activity in the for-sale housing market has already dampened and is likely to further thin down due to rising mortgage rates. This will also keep some renters longer in apartments, hence adding to the demand for multihousing units.

Reversed Demand Across Property Segments; Occupancy Dwindles in Several Sun Belt and West Markets

The national asking rent increased 0.9% month-over-month in April, maintaining the same rate as March. The difference is that Renter-by-Necessity units posted a 1.0% increase, while Lifestyle apartments rose by just 0.8%.

Gains were led by Boston (2.0%), Raleigh (1.8%), Philadelphia (1.6%), Tampa (1.4%) and New York (1.3%). Among the low performers were Washington D.C. (remained flat), the Twin Cities (0.1%) and Miami (0.2%).

The reversed dynamic based on asset quality was most illustrative in Orlando—RBN rents were up 2.9% in April and Lifestyle by just 0.2%—and Nashville, where RBN rents rose 2.1% and Lifestyle rents decreased by 0.1%. This could point to increasing demand for lower-priced units.

Undersupply Boosts Rents; Housing Starts Rise; Population Growth Slows Amid High-Construction

In addition to the pent-up demand, the housing undersupply drove the consequential rent growth. Analysts estimate the U.S. is short by 2 million to 5 million housing units. Developers intensified construction in recent years, with new supply at about 400,000 units in 2021 and 800,000 units under construction, but several factors are withholding construction in areas needing it. These include constraints of land, high cost of land, labor and supply shortages, as well as NIMBY protests across the country. Regulatory hurdles add about 32 percent to the average cost of a project, according to the National Multifamily Housing Council.

Housing starts have risen to 1.8 million annually, above the 40-year 1.4 million average, but the 16 million to 17 million homes built between 1980s and 2010 fell to less than 11 million in the 2010s. Specifically, according to Leonard Kiefer, deputy chief economist at Freddie Mac, the country went from a surplus of 1.9 million units of housing in 2010 to a 3.8-million-unit shortfall in 2020. “We are now headed into a period of unsustainably high construction,” according to Chris Porter, chief demographer at John Burns Real Estate Consulting, and ultimately, this will reverse the dynamic.

SFR Sector Continues to Expand

The asking rent for the single-family rental segment rose 13.2% year-over-year through April, 90 basis points below the March rate. The national occupancy rate remained flat, but on metro level, wide variations occurred. Orlando (50.3%), Miami (31.7%) and Las Vegas (20.3%) led in rent growth.

The number of potential homebuyers is shrinking, more so since the house prices began to rapidly rise and interest rate to increase. Others are losing to the increasing competition from institutional investors. Paired with the increased preference for suburban housing, the SFR sector in thriving.

Read the full Matrix Multifamily National Report-April 2022

The post [April 2022] Multifamily Market Research and Trends appeared first on Yardi Matrix Blog.

Despite a slight softening, the multifamily industry continues its record-setting performance.

Report highlights:

• The national average asking rent rose 14.8% on a year-over-year basis, to an all-time high of $1,642; rents rose 2.1%, or $34 on a T3 basis, marking a record growth for a first quarter.
• Inflation and the war in Ukraine act as headwinds for the multifamily market and will influence the pace of growth.
• Renter-by-Necessity and Lifestyle segments reach equilibrium in short-term rent growth.
• The single-family rental sector posted solid rent performance, with the year-over-year average dropping 80 basis points to 14.1%.

Spring Seasonal Growth Begins With a Slight Moderation in Rent Growth, Still Marks a New Record

The U.S. multifamily market posted healthy performance, with the average asking rent up $14 to $1,642 in March. This represents a 14.8% year-over-year increase, but 50 basis points below February—at the start of the spring seasonal growth, the first signs of softening appear in some markets. Global events and economic conditions support the expectations of a slowdown. Still, during the first quarter, rents rose $34, or 2.1%, more than in any prior first quarter; since March 2021, national asking rents appreciated by $212.

Demand remains healthy, supported by young workers, but household formation is likely to moderate in 2022. Official numbers have not been released yet but estimates report that some two million households formed in 2021, while absorption stood at 500,000. This year’s households and absorption predictions drop to about half those figures, which is closer to ‘normal’ levels.

Miami continued to outperform all other major metros, and rent growth was up 26.3% year-over-year in March, followed by Orlando, Tampa, Las Vegas and Phoenix. Of the top 30 metros, these five posted asking rent increases of 23% or more, 87% of markets had rents rise by 10% or more, and just three below 10.0% in growth: San Francisco (8.7%), Kansas City (8.1%) and the Twin Cities (5.1%).

The decrease in occupancy rate in some Sun Belt and West markets signals that demand has not kept pace with new supply and might be cooling off—Phoenix (-0.5%), the Inland Empire and Las Vegas (both -0.4%) and Sacramento (-0.3%).

Demand Even Across Property Segments; Tech Hub Markets Take Lead

The national average asking rent increased 0.9% month-over-month in March, or $14, 30 basis points above the January and February rate. The increase was slightly lower than 2021, when rents rose $18.

Tech hubs San Jose (2.1%) and Seattle (1.8%) took the lead, followed by Chicago (1.6%) and Dallas (1.1%). Atlanta (0.1%) and Baltimore (-0.6%) ranked lowest.

State of Economy and Global Events Cast Shadows on Fundamentals

While the multifamily market posts healthy fundamentals, above-trend inflation, rising interest rates and the war in Ukraine raise concerns. The Federal Reserve is trying to keep inflation under control by increasing the interest rate—the 10-year U.S. Treasury rate yielded 2.4% in late March, which is the highest it’s been in the last three years and will likely continue to grow. This comes at a time when multifamily acquisition yields are at all-time lows—averaging 4.5% and lowering to the 3% range for assets in prime locations or with high revenue streams—which can complicate transactions and refinancings.

Typically, properties purchased at low cap rates need to raise rents considerably to reach yield targets if the 10-year Treasury rate climbs above 3%, according to Ken Rosen, professor emeritus at the University of California, Berkeley, and chairman of real estate research firm Rosen Consulting, who at the Pension Real Estate Association 2022 Spring Conference said “I worry that (real estate professionals) forgot what it’s like in a normalized cap rate environment.”

Demand Pushes Forward the Single-Family Build-to-Rent Segment

The asking rent for the single-family rental segment rose 14.1% year-over-year through March, 80 basis points below the February rate. In seven metros, the average asking rent increased by 20% or more, led by Orlando (51.8%), Miami (35.1%), Toledo (25.3%) and Tampa (23.3%). Occupancy inched up 0.1% nationally year-over-year, and the construction pipeline is robust.

National Rental Home Council and John Burns Real Estate Consulting data shows that BTR homes accounted for 26% of properties added to the SFR sector in the final quarter of 2021, an impressive jump from 3% in the third quarter of 2019.

Read the full Matrix Multifamily National Report-March 2022

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Report highlights:

• Rent growth continued unabated in February, with a 15.4% year-over-year increase in the average asking rent; rent growth will likely fall behind the pace established since March 2021 eventually, but demand shows no signs of a slowdown.
• Occupancy rose another 120 basis points in the 12 months ending in January, with growth especially strong in Texas and Florida metros.
• Renter-by-Necessity segment outpaced Lifestyle units in short-term rent growth.
• The single-family rental sector marked a big jump in rent growth in February, up 14.9% year-over-year; occupancy remained flat.

Demand Overpowers the Seasonal Pattern—Rent Growth Marks New Record

The average national asking rent rose $10 to $1,628 in February, bucking all expectations of a slowdown. The increase represents a solid 15.4% year-over-year gain, and up a full percentage point over January. It’s anticipated that rent growth will fail to match the rates that started in March 2021, but demand will persist.

Miami ranked highest in rent growth, up 27.0% year-over-year through February. Overall, eight of the top 30 metros posted asking rents increases of 20% or more, and 90% of the markets posted double-digit rent gains. New York’s lead in occupancy boosted rents, up 17.6%. Even the bottom-ranking metros posted significant rent improvements: San Francisco (9.0%), Kansas City (8.1%) and the Twin Cities (5.3%).

Housing Shortage Boosts Occupancy, Even in Gateway Markets—Are Workers Returning?

This prolonged rent growth reflects the nation’s housing supply, exposed by the pandemic to an overwhelming demand. The occupancy rate highlights it even further as, in January 2021, just 13 of the top 30 markets had rates above the 95.0% threshold, but at the start of 2022 just two of the top 30 were below that mark.

Occupancy picked up in markets hardest hit by the pandemic, such as New York (2.9%), San Jose (2.8%) and Chicago (2.6%), but was strong in high growth/high-supply metros such as Nashville (2.3%) and Austin (2.1%). The weakest performance was recorded in Phoenix, Sacramento and the Inland Empire (-0.2%) and Las Vegas (0.1%), but all these metros had consistent rent growth due to already high occupancy, boosted by renters relocating from overpriced locations.

Short-Term Rent Changes Turnaround—Working-Class Segment Takes the Lead

The national average asking rent increased by 0.6% month-over-month in February, maintaining the pace from last month. The largest increase in rents in February since 2015 has been $4. RBN rents (0.8%) outperformed the Lifestyle segment by 20 basis points.

Miami (1.5%), Orlando (1.1%) and Orange County and Dallas (both 1.0%) led in month-over-month rent growth. Twin Cities (0.2%) and Baltimore (0.1%) closed the ranking.

New Work-Live-Play Model; New Migration Trends Reshuffle Multifamily Markets

As we enter the third year of the pandemic, it has become apparent that workspaces and living quarters have new meanings. The work-from-home model proved to employers that productivity doesn’t have to suffer and opened new opportunities for employees while improving work-life balance. The shortage of qualified labor gives office workers more bargaining power when establishing work agreements. According to surveys, a significant number of workers would quit if forced to return to an office full time and estimates say that the number of remote workers is expected to rise to roughly 25% from 10% pre-pandemic.

Remote work has and will continue to have a meaningful impact on the multifamily market as workers will continue to use the chance to move to smaller, lower-cost metros, turning them into challengers to primary markets. The scenario is already reflected in the migration data: According to the U.S. Census Bureau, in the 12 months ending in July, migration trends pointed to states in the South, Southwest and Mountain West, led by Florida (221,000 added residents), Texas (173,000) and Arizona (93,000). States with gateway metros lost the most population: California (-367,000) and Illinois (-122,000). Despite the population loss during the pandemic, gateway metros will continue to attract residents, but tech-focused secondary markets will continue to grow, too.

Robust Demand for Single-Family Rentals Fuels Rent Growth

The asking rent for SFRs posted a significant jump in February, up 14.9% year-over-year. Meanwhile, occupancy rates remained unchanged. Asking rents grew by 20% or more in seven metros, led by Orlando (53.5 percent), Miami (36.5 percent), Tampa (27.6 percent) and Toledo (21.7 percent).

The sector is boosted by several factors, including the rising house prices, the growing competition from institutional investors and the increasing preference for suburban housing. According to Redfin, in the final quarter of 2021, the share of single-family homes purchased by investors rose to an all-time high of 18.4 percent, with the Sun Belt as their preferred area.

Read the full Matrix Multifamily National Report-February 2022

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In the middle of the winter seasonal slowdown, the national multifamily market continues to post exceptional performance.

Report highlights

• The new year begins with a 13.9% year-over-year increase in the average asking rent; chances for rent growth to remain as elevated throughout the year are slim.
• Occupancy remained at 96.1% in December, which translates into some 460,000 units absorbed in 2021.
• Lifestyle rents maintain lead over Renter-by-Necessity units.
• The single-family rental segment also had a good start in 2022, with SFR rents up 13.5% year-over-year through January and occupancy up 0.2% during the period.

In the Middle of the Winter Seasonal Slowdown, Multifamily Rents Buck the Deceleration Trend

The average national asking rent rose $8 to a new record of $1,604 in January. The softening trend in rents only lasted two months, as rent growth posted a 13.9% year-over-year increase in January, up 30 basis points over December. It’s expected that the rate will decrease as monthly gains decelerate compared to a year ago.

Growth in rent has accelerated during the pandemic, as the average U.S. asking rent rose to $1,600 from $1,500 in just seven months and to $1,500 from $1,400 in 10 months. It’s unlikely that rent growth will remain in the 13% growth range throughout 2022, but at this point it reflects lasting demand.

On an annual basis, rates increased by 20% or more in six of the top 31 metros and by 10% or more in 28. Miami, Phoenix and Orlando topped the rank and San Francisco (7.6%), Kansas City (7.2%) and the Twin Cities (5.0%) occupied the bottom positions.

Long-Term Rent Changes Remain Higher for Upscale Units; Occupancy Still Above 96%

Lifestyle apartments (16.5%) maintained the lead over Renter-by-Necessity units (11.5%). In New York the discrepancy between Lifestyle (22.2% year-over-year) and RBN (1.8%) rent growth is extreme and can be attributed to Manhattan’s rebound and the return of young workers—the borough was most affected by the pandemic but made a strong comeback since the spring of 2021. Moreover, Lifestyle apartments are less subjected to rent controls.

The occupancy rate in stabilized properties rose 1.3% year-over-year through December, to 96.1%. Last year, some 460,000 units were absorbed nationally, more than double the previous year and more than 50% above the previous annual high. Dallas and Houston led absorption last year, followed by Miami, New York, Chicago, Washington and Los Angeles, all of which absorbed 20,000 units or more. In fact, of the seven gateway markets, just one was below the 4.0% national average: New York clocked in at 3.8%.

In the Short-Term, Working-Class Units Lead in Rent Growth; The Tables Turn for Best- and Worst-Performing Metros

The national asking rent increased by 0.5% in January, a 40-basis-point increase above December. RBN rents (0.6%) outperformed the Lifestyle segment by 10 basis points.

Gains were led by San Jose, Baltimore and Los Angeles. Only two markets posted rents below pre-pandemic levels—San Jose and San Francisco—but here too a rebound is underway. Phoenix and Las Vegas—former leaders in rent growth—ranked near the bottom of the list (-0.1%).

Capital Markets Exhibit Strength; Multifamily Sales Mark an All-Time High in 2021

At the start of 2022, multifamily capital market conditions are robust, coming at the heels of record-high transaction volume and prices. Investors look for assets with strong fundamentals to deploy equity and debt into, and property owners want to exploit the record-low interest rates. Presently, the biggest factor standing in the way of a higher transaction activity is the number of sellers willing to put their properties on the market.

Multifamily sales totaled $198 billion in 2021, 55% more than 2019’s pre-pandemic high-threshold when $128.6 billion in assets traded, and more than double 2020’s total of $95.4 billion. The per-unit price reached $191,000 last year, more than 20% above the previous high of $157,000 in 2020. Freddie Mac anticipates that this year’s multifamily mortgage volume will reach $475 billion to $500 billion (up from $360 billion in 2020 and $450 billion in 2021).

Single-Family Rentals Captivate Investors

The asking rent growth for SFRs softened again but still marked a 13.5% year-over-year increase through January. Occupancy inched up 0.2% nationally during the period.

Ongoing pandemic measures keep demand strong in the sector. Although it’s still relatively small, the niche is increasingly attractive to investors. According to John Burns Real Estate Consulting, more than $50 billion of capital is competing for SFR investments. These funds amount to some 125,000 homes, the equivalent of 1% of the SFR market, and come from large institutions, as well as foreign capital, which signals a developing market.

Read the full Matrix Multifamily National Report-January 2022

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■ The multifamily market appears poised for another solid year in 2022, although it is not likely to match 2021’s unexpected exceptional performance. We anticipate demand for apartments will remain robust, highlighted by strong economic growth and household formation. Meanwhile, capital conditions will be favorable, driven by investors’ insatiable appetite for stable income and low mortgage rates.

■ U.S. economic growth in 2022 will decelerate from its decade-long high of roughly 6% in 2021 but should remain above trend. The economy is benefiting from lingering monetary stimulus, job growth, higher wages and consumer wealth, while supply-chain issues have continued into 2022. Inflation and the labor shortage are the biggest headwinds, but most of the negative ramifications from those matters won’t be felt until 2023 or later.

■ After asking rents rose 13.5% nationally in 2021, it’s an easy call to forecast a moderation in rent increases. However, we still expect overall U.S. rent growth to reach 4.8% in 2022, well above the long-term 2.7% average. The conditions that drove higher rents in 2021—including pent-up demand coming out of the pandemic, strong job growth, soaring home prices and healthy consumer savings—have not fully subsided.

■ Absorption hit record levels in 2021, prompting occupancy rates to flirt with all-time highs. In that light, concerns about oversupply have become moot and builders are ramping up projects. As of the beginning of 2022, more than 750,000 market-rate apartment units were under construction. After 350,000 units delivered in 2021, we expect about 385,000 to 400,000 more in 2022.

■ The amount of investment capital chasing multifamily, both equity and debt, is enormous. Property values are rising rapidly, driven by lower acquisition yields and increases in net income as asking rents shoot higher. Some $166 billion of multifamily transactions were completed in 2021, up 75% from 2020, and the only limit is the number of properties put up for sale. Debt availability is also robust, led by Fannie Mae and Freddie Mac, which have increased capital allocations in 2022. Multifamily debt has also driven record levels of lending by private equity funds.

Read the full Matrix Multifamily National Report-Winter 2022

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The national multifamily market’s record year ended with a new record—the long-term rent growth is more than double any previous year, but the short-term rate matches the typical seasonal performance.

Report highlights

• National rents closed the year with a 13.5% year-over-year uptick; rent growth in 2021 was more than double any previous year recorded by Matrix.
• Occupancy remained high, maintaining the 96.1% rate in November; nearly 600,000 units absorbed through November, about 50% more than the previous annual high set in 2015.
• Single-family rentals had asking rents rise 13.8% in 2021, and the occupancy rate maintained the softening trend and rose 0.4% year-over-year through December.
• Rent growth is anticipated to decelerate in 2022 and hover around a 5% annual increase, which, by historical standards, signals another strong year for the multifamily sector.

Seasonal Softening Leaves Almost no Mark in the Market’s Performance—Rent Growth Rises, Occupancy Still Above 96%

December was a regular month in an irregular year—the national average rent added just $2 in December, which is half the November increase and well below the $23 month-over-month gain in October. However, national multifamily rents rose 13.5% year-over-year, is 8% higher than the market’s previous peak year of 2015. Overall, the average U.S. asking rent rose $190 in 2021, to $1,594 in December. Through November, nearly 600,000 units were absorbed, roughly 50% more than the previous annual high, set in 2015, according to Matrix data, keeping occupancy above the 96% mark for the fifth consecutive month.

Rent growth was even across the map, with 26 of the top 30 metros posting double-digit increases year-over-year through December, and six with gains of 20% or more: Phoenix (25.3%), Tampa (24.6%), Miami (23.5%), Orlando (22.7%), Las Vegas (22.2%) and Austin (20.9%). However, the impressive annual growth is attributed in part to the fact that, in 2020, rent growth was relatively flat. A special case is New York, where the asking rent turned positive in July after 14 consecutive months of negative movement and ended the year with a 14.2% year-over-year gain in December.

Short-Term Rent Changes Remind of Normal Performance

On a month-over-month basis, December rent growth was up just 0.1%, marking a 20-basis-point deceleration from November, which had already marked a 120-basis-point decrease from October. Lifestyle and Renter-by-Necessity improved in lockstep.

Despite the relatively flat rent growth from November to December, by metro the numbers varied widely: 18 of the top 30 posted rent increases, led by the Inland Empire (1.1%), New York and Charlotte (each 1,0%), while another six markets had rents rise by 0.5% or more. In a dozen metros rents decreased, with the weakest performance in Portland (-1.0%), Raleigh (-0.7%) and the Twin Cities and Washington, D.C. (both -0.6%). On a trailing three-month basis, no metro posted negative rent growth.

New Migration Patterns Impact Rent Growth (and) Forecasting

Following the atypical year 2021, forecasting rent growth is more of a gamble than ever before. However, new migration patterns reveal where demand is hot, hence where growth could intensify going forward.

High-cost gateway centers experienced out-migration, residents reorienting to more affordable and less dense metros in the South and Southwest. Specifically, between March 2020 and December 2021, asking rents exploded in Phoenix (31.1%), Tampa (28.5%), Las Vegas (28.2%), Atlanta (22.9%), Orlando (21.4%), Raleigh-Durham (20.7%) and Charlotte (20.6%). Similarly, secondary markets neighboring high-cost metros have benefitted from the influx of residents looking to relocate, as reflected in the rent growth in the Inland Empire (25.4%), Sacramento (20.2%), Orange County (18.3%), Baltimore (11.7%), Colorado Springs (14.7%), Northern New Jersey (8.9%) and Long Island (8.6%).

Former high performers of the multifamily market are now trailing the rest and post average rents below pre-pandemic levels: San Jose (-4.8%), San Francisco (-2.1%) and New York (-0.1%). Their performance is tightly related to office usage, which has declined considerably here. However, demand shows healthy signs of recovery as, in November, the annual occupancy rate in stabilized properties was up 3.2% in New York, 2.9% in Chicago, 2.5% in San Jose and 2.0% in San Francisco.

The SFR Sector Marked a Maturation Milestone, Ends the Year on a High-Note

The sector’s asking rent marked a slight deceleration, but still closed the year up 13.8% year-over-year through December. Meanwhile, occupancy was up 0.4% nationally, but with a spotty performance on a metro level.

Looking at the sector’s performance throughout the past decade, 2021 appears as the year the industry matured: Institutional investors placed billions of capital into the sector, which prompted banks to accept financing SFRs more comfortably.

Read the full Matrix Multifamily National Report-December 2021

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