'Modest Deceleration' Underway for Multifamily
Net absorption came in low, at about 21,000 units nationally in the third quarter.
A so-called ‘modest deceleration’ is underway for the multifamily sector, with net absorption coming in at about 21,000 units nationally in the third quarter.
According to Moody’s Analytics, net absorption is still “notably low” relative to the 84,040 units for the first half of the year, an average of 42,020 units per quarter. New construction deliveries came in at less than 12,000 units, and the national vacancy rate decreased 10 basis points to finish Q3 at a five-year low of 4.4%. Asking rents also increased by 1.6%.
At the metro level, multifamily vacancy increased in 19% (or 15 out of 79) primary US markets analyzed by Moodys, ten more than last quarter. On a trailing 12-month basis, the list of metros with increasing vacancy tripled, led by Buffalo.
“While still historically robust, rent growth looked tame compared to the skyrocketing growth established a year ago,” the Moody’s report notes. “The likely culprit: affordability issues are finally squeezing some household budgets. On a year-over-year basis, asking rent growth slid off the peak of 16.9% (17.6% effective) between mid-2021 to mid-2022, and stood at 10.2% (10.6% effective) in this quarter.”
Yet office and retail are worse off. The former has seen vacancy hovering at 18% since early 2021, and while net absorption rose in June and July, “the trend was short-lived as economic uncertainties pressured the sector’s fundamentals.”
Total net absorption at the end of the third quarter was less than a their of total construction deliveries and vacancy remained at 18.4%, near its pandemic peak. Boston, San Francisco, Houston, and St. Louis all lost more than 1 million square feet in demand this year.
And as for retail, “performance is caught in a push-pull dynamic between pent-up demand and heightened inflation pressure,” according to Moody’s. “Our data shows the national vacancy for neighborhood and community shopping center has stayed flat at 10.3% since a year ago, while asking/effective rent kept virtually unchanged in the 3rd quarter. Trend data on regional and super regional malls tells a similar story. Vacancy ticked up 10 basis-point to 11.1% and effective rent was up 0.1% this quarter. Despite some signs of stabilization, regional mall properties continue to be the most at-risk retail subtype according to our commercial mortgage delinquency data, and they are driving overall delinquency behavior among retail assets.”