NMHC Reports Mixed Apartment Market Conditions in Q2

Apartment market conditions continue to loosen, though deal flow increased for the second straight quarter amidst more favorable conditions for debt financing.

Jordan B. & Han-Gwon Lung
July 23, 2024

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Good morning. According to the latest NMHC survey, apartment market conditions continue to loosen, though deal flow increased for the second straight quarter amidst more favorable conditions for debt financing.

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Market Snapshot

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Pct Chg:
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FTSE NAREIT

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10Y Treasury

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SOFR

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*Data as of 7/22/2024 market close.

Apartment Market

NMHC Reports Mixed Apartment Market Conditions in Q2

The National Multifamily Housing Council's latest survey reveals mixed results for the apartment market in Q2 2024, showing improved deal flow amid looser market conditions.

Looser market: The Market Tightness Index remains below the breakeven level at 47, indicating looser market conditions for the eighth consecutive quarter. While 50% of respondents saw no change, 27% observed a loosening, down from 37% in April, and 22% reported tighter markets.

Sales volume rising: The Sales Volume Index reached 57, reflecting a second consecutive quarter of increasing deal flow. Thirty-two percent of respondents reported higher sales volumes, a notable increase from 21% in April and 6% in January. Meanwhile, 46% saw no change, and 18% reported lower volumes.

Equity is still tight: Equity financing remains challenging, with an index of 49, continuing a ten-quarter trend below the breakeven mark. Sixty percent of respondents saw no change in equity financing, 13% found it more available, and 16% reported reduced availability.

Improved debt: Debt financing conditions have improved, with the index climbing to 63. Thirty-seven percent of respondents reported better borrowing conditions, while 44% noticed no change, and 11% experienced worse conditions.

➥ THE TAKEAWAY

Big picture: The ongoing looser market conditions, coupled with a rise in the Market Tightness Index from 41 in April to 47 in July, indicate higher vacancy rates and weakening rents. The NMHC tightness survey, along with the Architectural Billings Index's 22-month decline in multifamily design billing, suggests multifamily starts will face continued pressure in 2024.

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✍️ Editor’s Picks

Healthy pipeline: A new JV between Catalyst Healthcare Real Estate and Heitman will develop $300M in healthcare properties nationwide, including outpatient facilities with key tenants.
Debt burden: As inflation and interest rates stay high, the cost of borrowing has become nearly unsustainable for American consumers, who are burdened by more mortgage, credit card, student, and auto debt than ever before.
Cutting out middlemen: Airbnb (ABNB) hosts seeking independence due to profit dips are looking instead to mid-term rentals as short-term rental shifts challenge the leading platforms.
Housing permit plunge: Despite stable interest rates and a strong job market, LA permitted 18.9% fewer homes this year, totaling just 5,208 approved.
Green expansion: Dwight Capital launches a new C-PACE lending platform led by Lisa Nordel that offers clean energy financing for property owners.
Capitalizing on chaos: Davis Cos. raised a record-breaking $877.1M for Fund V, targeting market dislocations in multifamily, science, technology, industrial, and self-storage.
Blueprint breakdown: Project 2025's conservative blueprint advocates for maintaining single-family zoning and introduces challenges to housing vouchers and transit subsidies.

🏘️ MULTIFAMILY

Building more beds: Core Spaces plans nearly 10K off-campus student housing beds in three key markets amid recovering post-pandemic higher education enrollment demand.
Landmark living: Hillwood is busy planning the massive Landmark project in Denton (near Dallas), with 6K homes, 3K apartments, and 5 MSF of commercial space.
Midwestern miss: Multifamily sales in Kansas City dipped in early 2024, with just over 2.2K units sold, the city’s lowest level since 2010.
Battery boost: The Battery Park City Authority transferred a $500M surplus to NYC for affordable housing, addressing the city’s critical shortage amid record-low vacancy rates.
Underwriting utopia: Safehold funded a 164-unit affordable housing project in San Jose that includes 92 studios, 58 one-bedrooms, and 14 two-bedrooms.
Rent roulette: After some early-year growth, Las Vegas apartment rents remained steady in June. Seasonal trends could explain the pause.

🏭 Industrial

Silicon sanctuary: Hines secured $120.3M to build the sprawling 636 KSF Edenvale Business Park in San Jose near Highway 101, which is expected to be completed in 2025.
Sky-high warehouses: Multistory industrial facilities comprise less than 1% of industrial real estate nationwide and are mainly found in infill markets like NYC and Seattle. But this niche is growing.
Streamlining success: Stream Realty Partners acquired a nearly 600 KSF industrial portfolio in Chicago for $83.5M, fully leased to 7 tenants.

🏬 RETAIL

Parking powerhouse: Icon Parking, the largest parking operator in Manhattan, recorded the city’s top lease this year with a 56 KSF UES garage.
Market makeover: The recently renovated Marketplace del Rio, a 183.3 KSF center in Oceanside, CA, sold for $56.6M to 1st Commercial Realty Group at $384.24 PSF.
Luxury lockdown: The Saks Fifth Avenue flagship in San Francisco has shifted to appointment-only shopping, citing concerns such as theft, amidst the city’s challenging retail environment.

🏢 OFFICE

Prime predicament: Limited new construction in the national office market may lead to a shortage of top-tier office space, with only 4MSF added next year.
Skyline shuffle: Sterling Bay plans to sell the 1200 W Carroll Ave site in Chicago’s Fulton Market, which was previously slated for a 14-story office building.
Future-proofing cities: Post-pandemic US cities with at least a 20% office vacancy rate are converting more and more buildings to housing, reshaping urban landscapes.

📈 CHART OF THE DAY

Americans' credit card debt has soared to over $1.1T, with rising interest rates and balances straining finances. The average credit card balance also topped $6K, with interest rates hitting a peak of 22% for the first time since 1996. Soaring credit card debt and interest rates have also pushed up monthly payments, impacting borrowers with weaker credit scores the most.