Multifamily Market Could Be on the Cusp of Stabilizing

As more and more brand-new apartment units throw open their doors for renters, vacancy rates are rising. And that is depressing rent growth in those markets, a CoStar report for October shows.

Demand nationally reached its highest peak since 2021 at 116,000 units. But 140,000 new units came online. The difference pushed the national vacancy rate up 10 basis points to 7%. However, the fact that this marked the slowest rate of increase since 2021 signals, the report said, that the market could be on the cusp of stabilizing.

The worst gaps between demand and supply were in the Sunbelt states. These states – which saw the fastest rent growth in 2021 and 2022 –are now seeing rents dive in many markets. Among the worst affected were Atlanta and Austin, where rents rose 17% in late 2021. Atlanta is now facing negative rent growth of 3.1%; in Austin it is negative 4.8%.

Another casualty of the oversupply is luxury rentals, which account for 70% of all new multifamily construction. There was a 300 basis point rise in vacancy rates to 9.1% in the four and five-star category. Rent growth fell 0.4%.

However, demand for mid-market rentals – which saw much less new construction – remained positive, enabling 1.4% increase in rent growth. This was a slightly lower rate of growth than in the previous quarter, but above the overall 0.8% average. Northern New Jersey, and Cincinnati both saw 3.4% rent growth, the highest in the nation.