Today, Apartments.com – a CoStar Group online marketplace – released an in-depth report of multifamily rent trends for the fourth quarter of 2023. Throughout the year, a record number of units were delivered, presenting varying supply and demand challenges across the country.
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Annual and Monthly Apartment Rent Growth by Region (Graphic: Business Wire)
“The U.S. multifamily market staged a strong rebound in 2023 as the number of units absorbed rose by 122% year-over-year to 332,000 units,” said Jay Lybik, National Director of Multifamily Analytics at CoStar Group. “While the increase in demand was impressive, it was overshadowed by the influx of new units, causing imbalances in supply and demand and pushing vacancy rates higher. With fewer unit completions slated for this year, 2024 may offer some reprieve for the multifamily market.”
RECORD UNIT COMPLETIONS CAUSE SUPPLY-DEMAND IMBALANCE, HIGHER VACANCY
In 2023, 565,000 new units were delivered, the highest number of units completed since the mid-1980s. The record number of deliveries caused an imbalance between supply and demand, pushing the vacancy rate higher from 7.3% at the end of September to 7.5% in December, marking the ninth-consecutive quarter in which supply outpaced demand. As a result, vacancy was over 100 basis points higher at the end of 2023 than it was at the end of 2022.
REGIONAL ANNUAL RENT GROWTH DIFFERENCES
With vacancy rising throughout 2023, average annual asking rent growth decelerated from 3.9% at the start of the year to 0.9% by the third quarter, remaining there until year-end. Midwest and Northeast markets avoided oversupply conditions and maintained strong rent growth throughout the year. In the South, oversupply pushed rent growth into negative territory while markets in the West experienced a mix of weak demand and limited completions over the past 12 months, keeping rent growth restrained but positive.
ORANGE COUNTY, CALIFORNIA, ENDS 2023 WITH STRONGEST ANNUAL RENT GROWTH, SUN BELT CITIES FALTER
Of the top 50 markets across the country, Orange County held the strongest annual asking rent growth for the year at 3.9%. Louisville and Northern New Jersey were close behind, both at 3.7%. The majority of the 10 best performing markets for annual rent growth are in the Midwest or Northeast.
On the other hand, rents fell by 5.1% over the year in Austin, followed closely by Jacksonville, Charlotte and Atlanta with annual rent losses ranging from 4.8% to 2.6%. Eight of the 10 worst-performing markets in 2023 were in the South, due to supply-demand imbalances.
DEMAND FOR 3-STAR PROPERTIES RISES, 1- AND 2-STAR REMAIN THE WEAKEST
Over 300,000 units across 4- and 5-star properties were absorbed in 2023. However, with the majority of new supply coming into the luxury market, annual asking rent growth decreased in this segment, finishing the year at negative 0.4%.
In contrast, demand for 3-star properties rose, with net absorption rebounding from negative 18,000 units in 2022 to a positive 64,000 units in 2023, helping to keep rent growth positive for this sector at 1.4%. The demand for 3-star properties was due in large part to improved consumer confidence, lower inflation and lack of a recession.
Demand for 1- and 2-star properties remained the weakest, with 2023 marking the second consecutive year of negative absorption. Households at this price point continued to struggle with higher costs for housing and everyday items, pushing some to seek alternative housing solutions, such as moving in with roommates or returning to family homes.
LOOKING AHEAD
After reaching a 40-year record high for unit completions in 2023, the multifamily market may be able to recover some in 2024. Only 444,000 units are projected to be delivered in 2024, a 25% pullback from the previous year. However, property operations going into the year vary widely depending on the market and price point. Markets in the South and luxury properties remain most at risk for further weakness due to oversupply, while Midwest and Northeast locations and mid-priced 3-star properties could outperform.
ABOUT COSTAR GROUP
CoStar Group (NASDAQ: CSGP) is a leading provider of online real estate marketplaces, information, and analytics in the property markets. Founded in 1987, CoStar Group conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of real estate information. CoStar is the global leader in commercial real estate information, analytics, and news, enabling clients to analyze, interpret and gain unmatched insight on property values, market conditions and availabilities. Apartments.com is the leading online marketplace for renters seeking great apartment homes, providing property managers and owners a proven platform for marketing their properties. LoopNet is the most heavily trafficked online commercial real estate marketplace with over twelve million monthly global unique visitors. STR provides premium data benchmarking, analytics, and marketplace insights for the global hospitality industry. Ten-X offers a leading platform for conducting commercial real estate online auctions and negotiated bids. Homes.com is the fastest growing online residential marketplace that connects agents, buyers, and sellers. OnTheMarket is a leading residential property portal in the United Kingdom. BureauxLocaux is one of the largest specialized property portals for buying and leasing commercial real estate in France. Business Immo is France’s leading commercial real estate news service. Thomas Daily is Germany’s largest online data pool in the real estate industry. Belbex is the premier source of commercial space available to let and for sale in Spain. CoStar Group’s websites attract nearly 160 million unique monthly visitors. Headquartered in Washington, DC, CoStar Group maintains offices throughout the U.S., Europe, Canada, and Asia. From time to time, we plan to utilize our corporate website, CoStarGroup.com, as a channel of distribution for material company information. For more information, visit CoStarGroup.com.
ABOUT APARTMENTS.COM
Apartments.com is the leading online apartment listing website, offering renters access to information on more than 1,000,000 available units for rent. Powered by CoStar, the Apartments.com Network of sites includes Apartments.com, ApartmentFinder.com, ApartmentHomeLiving.com, Apartamentos.com, WestsideRentals.com, ForRent.com, ForRentUniversity.com, After55.com and CorporateHousing.com.
Apartments.com is supported by the industry's largest professional research team, which has visited and photographed over 500,000 properties nationwide. The team makes over one million calls each month to apartment owners and property managers, collecting and verifying current availabilities, rental rates, pet policies, fees, leasing incentives, concessions, and more. Apartments.com offers more rental listings than any other apartments website, and innovative features including a drawing tool that allows users to define their own search areas on a map, and a "Travel Time" feature that lets users search for rentals in proximity to a specific address. Apartments.com creates easy access to its listings through a responsive website and iOS and Android apps and provides unmatched exposure for its advertisers through an intuitive name, strategic search engine placements and innovative emerging media.
The Apartments.com Network reaches millions of renters nationwide, driving both qualified traffic and highly engaged renters to leasing offices.
This news release includes "forward-looking statements" including, without limitation, statements regarding CoStar's expectations or beliefs regarding the future. These statements are based upon current beliefs and are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. The following factors, among others, could cause or contribute to such differences: the risk that new unit deliveries do not occur when expected, or at all; and the risk that multifamily vacancy rates are not as expected. More information about potential factors that could cause results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, those stated in CoStar’s filings from time to time with the Securities and Exchange Commission, including in CoStar’s Annual Report on Form 10-K for the year ended December 31, 2022 and Forms 10-Q for the quarterly periods ended March 31, 2023, June 30, 2023, and September 30, 2023, each of which is filed with the SEC, including in the “Risk Factors” section of those filings, as well as CoStar’s other filings with the SEC available at the SEC’s website (www.sec.gov). All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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