CoStar Sees Multifamily Demand Cooling Over Next Six Months

Mark down CoStar as perhaps the first apartment analyst firm to say a “perfect recipe” has been created for the rental market to experience rising vacancy rates in the next six months.

Rent growth continues with a national year over year increase of 9.2% in Q2, down from 11.4% in the first quarter.

“These findings mark a continued downward trend in rent growth, with this now being the third quarter in a row of diminishing demand,” its report said. The vacancy rate also was up 10 basis points to 5% nationally.

Another “pressing issue” CoStar said was that the past three quarters have seen absorption holding in the 60,000-unit range, which is well below the record totals posted last year, and also below average compared to pre-pandemic figures. 

This is an especially notable stat given that historically Q2 records the highest absorption totals for the year.

Jay Lybik, National Director of Multifamily Analytics, CoStar Group, said in prepared remarks, “That rent prices continue to sit at all-time highs with tempered consumer demand and a record 450,000 units expected to be delivered by year’s end and you have a perfect recipe for a sharp rise in vacancy rates in the next six months.

“Rent growth moderation in the second quarter is directly tied to the lackluster demand that we have seen over the past 90 days.”

Sunbelt and South Exceeding National Average

The report showed that the Sunbelt and South continued to exceed the national average, with the former holding four spots in the top 10 markets. 

Cities in Florida and Texas experienced year-over-year rent growth at least 4 percentage points higher than the rest of the US, led by Orlando, which had the highest year-over-year rent growth for Q2 at 18.7%, more than doubling the average.