Multifamily Momentum is Building as Strong Demand Continues

Momentum is building in the multifamily market, especially on the demand side, as inflation has improved, the labor market has remained resilient and interest rate cuts appear imminent. Multifamily fundamentals are turning a corner and will likely be boosted by strong demand going into the second half of the year, according to a Cushman & Wakefield multifamily report.

In its latest U.S. Multifamily MarketBeat, Cushman & Wakefield noted that the US multifamily vacancy rate declined during the second quarter for the first time since 2021. Vacancy dropped 10 basis points during the quarter. In addition, absorption grew to nearly 140,000 units during the second quarter, the fourth-highest rate since 2000. That figure was surpassed only by the first three quarters of 2021, the firm said. Through the first half of this year, absorption matched all of 2023’s demand.

Demand is strongest in the Sun Belt, which grew by 100,000 units this year, more than 2% of the region’s inventory. However, construction starts nationwide have fallen, with only 103,000 units breaking ground this year. This represents a decrease of 60% from last year. If supply remains diminished and demand remains strong, current supply should be absorbed over the next 18 to 24 months, said the report.

Finally, rent growth remains sluggish but is still positive at 1.7%, which is about half the historical average.

Cushman & Wakefield said capital markets improvements will continue to boost the multifamily market. In the second quarter, MSCI Real Capital Analytics reported a total US multifamily transaction volume of more than $38 billion. This remains slower than all-time peaks recorded in 2021 and 2022 but is up 19% year over year from last year and surpassed the second quarter of both 2017 and 2018.

In addition, there has been a significant uptick in broker-opinion-of-value volume since April, which has ballooned Cushman & Wakefield’s pipeline by roughly 25% since January. Letters of Intent are up even more, growing 2.5 times over normal levels just over the past 30 days, the firm said.

Although some sectors of the economy are currently in recession, Cushman & Wakefield said it believes the US will avoid an outright recession due to the relative strength of the economy. Growth will likely slow, it said, allowing the Fed to loosen monetary policy this fall. On that likelihood, spreads have tightened across most debt products, notably in CMBS products, said the firm.

“As a result of a resilient economy, demand for multifamily will likely remain robust, allowing fundamentals to recover over the next 18 months,” said Sam Tenenbaum, Cushman & Wakefield’s head of Multifamily Insights. “As fundamentals improve, rent growth will accelerate – likely not to 2021 levels – but mirroring the strong growth in the mid-2010s.”