We continue to stay informed with the latest market reports, and our most recent review is of Marcus Millichap’s 2024 Q2 Multifamily Report. You can access the full report here, or read our summary below.
Recent multifamily housing indicators underscore significant demand growth. Between January and March 2024, the number of occupied apartments in the U.S. surged by nearly 104,000 units, marking the strongest first quarter net absorption on record. This exceptional start positions 2024 for potentially reaching a three-year net absorption peak, barring unforeseen challenges. Key metrics for April, including a drop in average vacancy days to 28 and increased lease applications, further highlight sector improvement.
However, new supply remains pivotal in shaping market dynamics despite robust demand. The first quarter saw a record-high completion of over 135,000 new units across the country, contributing to a 10 basis point rise in vacancy rates to 5.9 percent. Notably, just eight major markets accounted for more than a third of national completions and absorption, demonstrating a nuanced balance between development and demand.
Concessions have become more prevalent in construction-heavy regions, tempering rent growth nationally across different apartment classes. Looking ahead, while the construction pipeline for 2025 and 2026 remains substantial, recent trends in multifamily permits suggest a potential slowdown.
The disparity between home ownership costs and apartment rents continues to widen, maintaining demand for multifamily housing despite temporary market challenges. This scenario, coupled with ongoing Federal Reserve decisions and market dynamics, underscores both opportunities and complexities for investors in the multifamily sector.
Concessions are Rising in Construction-Heavy Regions, Most Other Areas are More Insulated
Following a record-setting first quarter, ongoing construction efforts across major U.S. markets continue to influence supply dynamics. Cities like Atlanta, Austin, and New York City lead in new inventory, impacting vacancy rates and rental trends significantly. Conversely, markets with moderate construction, such as Chicago and San Francisco, show less impact on rental concessions and vacancy rates.
2024 Investment Outlook
Despite persistent challenges in debt costs, the multifamily sector remains resilient. Transaction volumes reflect cautious optimism, with absorption rates potentially bolstering investor sentiment. Cap rates have adjusted, offering potential opportunities amid economic uncertainties.
Federal Reserve Stands by Before Potentially Cutting Rates, Debt Capital Remains Available
The Federal Reserve's cautious approach to interest rates amid inflation concerns continues to shape borrowing conditions. Multifamily financing remains viable, albeit with adjustments in loan strategies and lender preferences.
Keypoints:
The first quarter of 2024 saw record-high net absorption in multifamily housing, indicating strong demand with nearly 104,000 units occupied.
Despite high demand, a record 135,000 new units completed in the same period contributed to a rise in vacancy rates to 5.9%, showcasing the influence of new supply on market dynamics.
Eight major U.S. markets dominated both completions and absorption, highlighting regional variations in supply-demand balance.
Concessions are rising in markets with heavy construction, impacting rent growth across different apartment classes nationally.
Elevated debt costs pose challenges, but strong absorption rates and adjusted cap rates present opportunities for investors in the multifamily sector.
The Federal Reserve's stance on interest rates and inflation continues to influence borrowing conditions and investor sentiment in the market.
Source:
Marcus & Millichap Research Services. (2024, May). April’s Cooler Inflation Readings Mitigate Economy’s Re-Acceleration Concerns. https://files.constantcontact.com/9315bf64701/62c225e0-070d-48b0-b2ce-bfe72a31e809.pdf
Dear reader,
Investing in a multifamily project has many advantages as, on balance, real estate offers lower economic and inflationary risks than stocks.
Of course, the decision to invest in real estate or invest in stocks or bonds or other asset classes, which offer different risks and opportunities, is a choice which depends on an investor's risk tolerance, objectives, financial status and investment style.
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Yours sincerely,
Anna & Peter Tan
SuiteLifeMF has acquired, operated and invested in real estate for over 10+ years, investing in over 1500 doors and with over US$ 100 under management (900+ doors). The company also operates a property management company which handles a portfolio of single family homes. SuiteLifeMF maintains a disciplined approach to investing, which focuses on capital preservation and strong returns with a deep understanding of submarkets, economic and political situations.
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