US Multifamily Market Shows Signs of Rebounding Apartment Demand
For the first time in 3 years, US apartment demand is showing signs of recovery, with stabilizing vacancies and potential rent growth in 2025.
Jordan B. & Han-Gwon Lung
November 06, 2024
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Good morning. The U.S. rental market is shifting as demand picks up, vacancy rates stabilize, and landlords look to regain pricing power after a building boom.
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Market Snapshot
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*Data as of 11/5/2024 market close.
MARKET REPORT
US Multifamily Market Shows Signs of Rebounding Apartment Demand
For the first time in three years, vacancy rates for U.S. apartments are stabilizing as demand ramps up, signaling potential rent increases on the horizon, reports the WSJ.
Vacancies stabilize: Following years of high vacancies due to a building boom, the apartment market is regaining stability. According to CoStar, demand is now the highest since 2021, filling over 1.2 million new units. National vacancy rates hover around 6.6%, a slight dip from recent peaks.
Supply constraints to tighten market: Apartment construction is set to slow in the coming years, likely creating tighter rental conditions. By the end of 2024, around 672,000 new units will be completed, with just 336,000 projected for 2025—a sharp drop. Fewer new units could give landlords more pricing power in the next cycle.
“Barring an unforeseen black swan event, it seems the near-consensus view—a rebound in fundamentals following the supply peak—is beginning to take shape,” said Jay Parsons, a Texas-based rental housing economist. “It serves as a reminder that supply pressures have been the primary challenge for apartment investors, and these pressures are typically both predictable and temporary.”
Investment sales: Apartment building sales are also rebounding, with two consecutive quarters of growth, according to MSCI Real Assets. Sales are especially strong in Denver, San Francisco, and Washington, D.C. suburbs, where sellers are adjusting prices.
Rent growth: Rent patterns vary across regions, with coastal and Midwestern cities like New York, Los Angeles, and Indianapolis seeing 5%+ renewal rent increases. Meanwhile, Austin, Texas—where vacancies top 15% due to rapid construction—faces rent stagnation, forcing landlords to offer concessions.
➥ THE TAKEAWAY
Big picture: Tight conditions in the housing market are keeping many renters from moving into homeownership, a trend likely to persist in 2025. High interest rates and unaffordable home prices mean that fewer renters are leaving the rental market, helping sustain demand for apartments.
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✍️ Editor’s Picks
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Banking on CRE: US banks, big and small, are preparing to ramp up CRE lending by 2025 thanks to expected Fed rate cuts while maintaining conservative underwriting standards.
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Troubling allegations: PACS Group shares fell 28% following a Hindenburg Research report accusing the nursing home operator of defrauding taxpayers.
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Retail dreams: Simon Property Group (SPG) plans to add 50 KSF of office space to Fort Worth's Clearfork, part of a $4B multi-use redevelopment pipeline.
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Everybody is asking: Blackstone’s Jonathan Gray told Goldman Sachs he sees CRE conditions improving, with lower capital costs and rising transaction activity ahead.
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Rising revenues: The third-largest property brokerage, Cushman & Wakefield (CWK), reported Q3 revenue of $2.3B, led by a 13% gain in leasing.
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Older, single buyers: The typical US homebuyer now has a median age of 56 and is more likely to be single and female.
🏘️ MULTIFAMILY
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Senate spotlight: Four U.S. senators are questioning KKR’s $2.1B multifamily acquisition, citing concerns about potential rent hikes and tenant impacts in the firm’s new 5,200-unit portfolio.
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Out with the old: Sandhill O'Farrell is planning a 17-story, 141-unit highrise in San Francisco that will replace a historic 13-story Gothic Revival-style parking garage.
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Paying it forward: A Santa Clara County agency bought a lot for a $76M project to build a 103-unit affordable housing complex for seniors, the homeless, and their families.
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Raising the stakes: Ares Management (ARES) will soon buy a 75% stake in the 392-unit 525 West 52nd Street for $270M, assuming a $200M loan.
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Florida expansion: RKW Residential expanded its management portfolio in Florida by 1.1K units, adding properties in Fort Myers, Hialeah, and Pompano Beach.
🏭 Industrial
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Data center expansion: DataBank plans to build a $256M, 425 KSF, two-story data center in Red Oak, TX (near Dallas), part of a 292-acre campus.
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Storage space goldmine: Peakstone Realty Trust (PKST) acquired a $490M industrial outdoor storage portfolio with 51 assets in 14 states.
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From farm to table: Fortress Net Lease REIT has expanded its industrial portfolio to over $700M with the $207M acquisition of three agricultural facilities from Syngenta AG.
🏬 RETAIL
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Franchise fallout: Franchise Group Inc. (FRG)—owner of The Vitamin Shoppe, filed for bankruptcy to restructure $250M in financing as B. Riley (RILY) faces a $120M write-down.
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Rethinking San Fran: San Francisco’s Mayor Breed introduced a bold plan to renovate Embarcadero Plaza and create a 5-acre park instead.
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Consolidation chaos: A potential merger between Alimentation Couche-Tard (ANCTF) and Seven & I Holdings (SVNDY) could create 100K+ stores, impacting 20% of the US convenience market.
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Curb appeal: Site Centers (SITC) acquired the curb-front retail portion of Chino Hills' Crossroads Marketplace for $34.2M, the first addition to its new Curbline Properties spinoff.
🏢 OFFICE
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Bank retreat: German banks like Deutsche Bank (DB) may soon face an ECB requirement that forces them to recognize US asset losses as they reduce their exposure to the CRE sector.
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NYU expansion: NYU has signed a master lease for Vornado’s (VNO) 770 Broadway, securing 1.1 MSF of office space and planning an upfront payment to cover Vornado’s $700M property loan.
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CMBS surge: The CMBS market boomed this year, with $74B issued in 9 months. And at this rate, 2024 is set to hit $90B by the end of the year.
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Tampa turnout: Tampa’s office availability rates have fallen to 23.5%, marking the city’s first quarterly drop since 2022. Occupancy is currently at 54.1% of 2019 levels.
🏨 HOSPITALITY
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Vacation mode: Hotels in popular destinations are offering day passes for amenities, with luxury hotel rates up 60% since 2019, driving new revenues.
📈 CHART OF THE DAY
Trepp reports that the office CMBS delinquency rate surged to 9.4% in October, marking its highest level since the post-Great Financial Crisis, and doubling from 4.5% in June 2023.
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