Multifamily saw a stunning reversal in the fourth quarter of 2022 as apartment supply finally surpassed demand, creating a “swift and unprecedented” downturn.
A new report from Apartments.com found that multifamily fundamentals declined in Q4, driven largely by limited absorption and supply/demand imbalances.
“We ended the year with absorption barely remaining positive and vacancy rates trending upwards. As 2022 progressed, economic uncertainty suppressed household formations which limited multifamily demand,” said Jay Lybik, National Director of Multifamily Analytics at CoStar Group, which owns Apartments.com.
“With 2023’s national forecast predicting the highest new supply totals since the 1980s, expect vacancy to rise above 7% and rent growth to push much lower.”
More than 95,000 new units were delivered last quarter but many stayed empty, causing the vacancy rate to rise to 6.2%.
Analysts predicted that 2022’s absorption would be weak compared to 2021’s record-breaking 700,000 units. But the year proved worse than expected, with final absorption totaling 169,000 units compared to 431,000 deliveries, barely half of their projections.
At the same time, asking rent growth declined by 3.7% YOY. Rents are down in the nation’s 40 largest markets, though 38 remained positive for the year.
Palm Beach saw the largest YOY drop in growth, down a dramatic 29 percentage points from 30.4% in 2021 to just 1.7% at the end of 2022.
Phoenix and Las Vegas both saw rents grow more than 20% in 2021, but were negative by the end of this year.
While growth in pandemic hotspots is correcting, Midwest and Gateway markets are experiencing their own booms as Americans seek out more affordable markets.
Indianapolis saw the highest YOY rent growth in Q4 at 7.4%, along with Cincinnati, St. Louis, and Columbus.
Competition is booming in these new hotspots, which have not seen the same boost in multifamily construction as the Sun Belt. Milwaukee had an average of 18 potential renters per unit this year, with apartments off the market in under a month.
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