Crittenden Report Editors
The dynamic duo of tamped down vacancies and negative absorption are signs of the stabilization of the U.S. multifamily sector. What’s more, these trends are expected to stay on course this year. By comparison, in Q1 2023, there was an uptick of 30 basis points quarter-over-quarter in the overall multifamily vacancy rate. It fell short of the pace of the 70-basis-point jump in Q4 2022 or the spike of 90 basis points in Q2 2022. The negative net absorption rate registered 1,900 units in Q1 2023, while the quarter before chalked up 14,000. In the meantime, absorption will head north in Q2 2023, anticipates CBRE.
When it comes to real estate, it seems the gateway markets — New York, Boston, Washington, D.C., Chicago, Los Angeles and San Francisco — often are in the conversation. No exceptions here. In Q1, collectively, they rung up $8B in investment volume. That accounted for 32% of the sector’s nationwide total, 24.7%. Quarter-over-quarter, there was a 36% drop off in gateway market investment volume. Among the other top 20 markets, investment pulled back an average of 57%.
At only 2.9%, New York maintained its spot as the largest market with the lowest vacancy rate. That was considerably lower than 3.5%, its long run average. In the meantime, vacancy rates of at least 3% were duplicated by 66 markets. In a repeat of Q4 2022, it surpassed Q3 by five markets and 23 in Q2 2022. Vacancy rates floating over 4% were shared by 57 — jumping from 52 in Q2 and 43 in Q3 2022. On another front, deliveries of new construction chimed in at 58,600 units in Q1 2023. That brought the fourth quarter to 332,200, barely failing to meet last year’s annual total of 343,300.
Now, atop the leader board reflecting year-over-year rent growth in Q1 2023: the Northeast/Mid-Atlantic, assumed the position from the Southeast. Fueled by Newark, N.J., at 7.1% and followed by New York at 6.4% and at 6.0%, Hartford, Conn., in Q1, the Northeast/Mid-Atlantic checked in with a growth of 5.7%. With 5.4%, the Midwest region powered through several others for year-over-year rent growth. The Southeast followed at 4.9%, with South-Central coming in at 4.2%, the Pacific with 3.6% and at 1.4%, the Mountain West rounded out the pack.
Furthermore, gateway markets — on a rolling four quarter basis — which fell back 27% in Q1, flashed a lower dip than the remaining top 20 markets.
In Q1 2023, a tick more than half of the 69 markets CBRE tracked — led by Orlando, Fla., at 3,200 units — recorded positive net absorption. Next on the list were Charlotte, N.C., with 1,300 units and Nashville, Tenn., at 1,200. And talk about power in numbers; over the past four quarters, New York, Washington, D.C., Dallas, Austin and Phoenix accounted for the top five markets for new deliveries. Of the total nationally, the group represented 26.5%.
Then there’s this: 66 of 69 of the markets CBRE tracks experienced vacancy rates of at least 3%. What’s more, 57 markets had rates surpassing 4%. At 2.9%, the Big Apple maintained its grip as the largest market with the lowest vacancy rate. The historical average is 3.5%.
Over the past four quarters, of the 20 leading markets for new supply, Austin, Phoenix and Minnesota were among those boasting completions to inventory ratio exceeding 3.5%. Others included Orlando, Charlotte, Nashville and Salt Lake City. It was a slip from eight markets in Q4 2022. As for Q1, negative net absorption was recorded by only four of the top 20 markets.
In Q1, at 2.1%, Honolulu, among 69 markets traced by CBRE, topped the gang with negative year-over-year growth in rent. Phoenix at -2% and Las Vegas at -0.9%, followed. In those two areas, it represented a reversal of sorts in light of the fact the rent pullbacks came on the heels of rent spikes of at least 25% in the midst of the pandemic. At the time, it significantly outran the national average.
Shifting to another part of the country, Newark, which burgeoned 7.1%, paced the Northeast/Mid-Atlantic region. In the rear, New York came in at 6.4%, followed by Hartford’s 6.0%.
The South-Central region chimed in with a year-over-year rent growth of 4.2%. At 3.6%, the Pacific checked in at second, while the Mountain West held up the rear at 1.4%. As for the lone wolf, at 10%, Madison, Wisc., in the Midwest was the sole area to kick in double-digit annual rent growth.
