Analyst: Multifamily Rent Growth Will Return to Historical Norms

The multifamily housing industry is facing headwinds such as rising insurance costs, with average premiums up 30% but significantly more in some markets. Taxes are always a pressure, too.

Kelli Carhart, Managing Director, Head of US Multifamily Capital, CBRE, talked about that, and the sector’s past, present, and future during a recent CBRE news video.

“There’s more focus on operations given that rent is moderating,” she said. “We’ll see record supply in 2023 and 2024 – but there’s a 44% decline in starts compared to the peak in 2022 and that will only continue to decline given the lack of construction debt that is available today.”

Carhart said she’s optimistic about the year ahead, “but rent growth moderate from the double-digit annual growth in the recent past and there are two years’ of new supply to work through, she said.

“But after that, we anticipate more accelerated rent growth because there will be a lack of starts after 2025.”

She sees rent growth returning and staying at historical norms (about 2.5%) and typical 5% vacancy rates as well.

“This will take a while to cycle out,” she said.

Cap rates thrived prior to 2023, with a lot of capital, low interest rates, and double-digit rent growth.

“Now, interest rates are double what they were a year ago and there is less capital available,” she said. “The industry is adjusting to a different norm. We haven’t truly had ‘normal’ in a while.” Carhart pointed out the importance that agencies are playing with lending, estimating that they provide 60% of the loans.

“Rates are about 25 bps lower for mission-driven housing than non-mission-driven, which [is important] given the higher interest rate environment we’re in,” she said.