Rental market deceleration foreshadows 2024 for multifamily operators

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The ranking took into account, among 139 markets, number of days apartments sat vacant, number of prospective renters, the percentage of renters that renewed their leases, apartment occupancy rates and how much new construction in 2023 was a percentage of a market’s total inventory.

RentCafe, part of commercial real estate data firm Yardi Matrix, recently found the most competitive rental markets this year were largely not the Sun Belt cities that during the pandemic posted double-digit gains in rents and saw significant lease-ups and big population migration. Rather, for the majority of the top markets, it’s slower-growth places like cities in the Midwest that have become the nation’s most competitive rental markets.

Nationally, the apartment market this year has been less competitive than it was in 2022, according to Yardi. On average, nine renters competed for a vacant unit in 2023, compared to 14 last year, and empty units sat unoccupied for about 38 days in 2023, compared to 22 last year.

According to RealPage, more than 461,000 units are scheduled to complete by the end of this year, followed by about 670,000 units next year. Apartment completions in most years are more typically around 300,000 units, according to the firm.

“Our view is that, nationally, rents will remain fairly flat in 2024, but in a lot of these higher-supply markets in the West Coast and southern parts of the country, we’re likely to see cuts in many spots”.

The sheer volume of apartments that delivered this year and that will in 2024 could cause challenges, especially for developers of new multifamily projects. Those firms more than likely underwrote their financing in a much different market, and current predictions by those who track the market suggest it’ll take longer to stabilize their properties.

Will renters see affordability benefits?

While the market slowdown may raise concerns for some apartment owners and developers, the pendulum is swinging in favor of tenants in many oversupplied markets, with those consumers having more choice in where they live and what they can afford.

One of the biggest surprises in 2023 has been the effect new supply has had on Class B apartment properties in ultra-new-supply markets. The rent spreads between a Class B and a brand-new apartment property have gotten smaller — even less than 10% of a rent premium in some submarkets.

That’s prompting more renters who can afford the slightly higher rent to r