Industry looks to rate cuts and economic strength for signs of a recovery
Despite a recent dip in multifamily rents, the broader market outlook remains positive as strong economic indicators and easing interest rates continue to bolster the commercial real estate sector.
The average multifamily advertised rents declined in September, bringing the national average to $1,750, according to Yardi Matrix. The drop was attributed to typical seasonal fluctuations and an increase in supply, particularly in Sun Belt markets. However, year-over-year growth remained stable at 0.9%.
Nationally, multifamily occupancy held steady at 94.8% in September, marking the fourth consecutive month at that level. The single-family rental market also saw a slight dip in advertised rents, falling by $3 to $2,167 in September. Year-over-year, single-family rents increased by 0.6% and single-family rental occupancy dropped by 30 basis points to 95.3% in August.
The economic outlook has been promising. The latest GDP figures were revised upward to 3% for the second quarter, alleviating concerns about a potential slowdown. The US added 254,000 jobs in September, and inflation fell to 2.5% in August.
The Federal Reserve’s unexpected 50-basis-point rate cut in late September, combined with the possibility of further reductions, has also brought relief to refinancing pressures and is encouraging more transactions.
Read more: How much will the Federal Reserve cut rates this year?
Over 300,000 apartment units were absorbed nationally through the first three quarters of 2024, with a total of 1.7 million units absorbed since the start of the pandemic in early 2020.
Additionally, the positive economic news has significantly boosted sentiment within the commercial real estate industry. The CRE Finance Council’s third-quarter Board of Governors Sentiment Index saw an 18% increase over the previous quarter. Investors cited favorable economic conditions, improved transaction volumes, and growing liquidity in debt markets as key drivers of this optimism.
While rent growth in certain regions, like the Sun Belt and Mountain West, has flattened or turned negative due to rising supply, the demand for multifamily housing remained robust.
Gateway markets in the East, and secondary markets in the Midwest led year-over-year rent growth. New York City saw a 5.4% increase, followed by Kansas City with 4.2% and Boston with 3.4%.
In some Sun Belt metros, asking rents have been under pressure. Austin posted a year-over-year decline of 4.9%, followed by Raleigh at -3.1%, and Phoenix at -2.4%.
“Rents have flattened or turned negative in some metros in those regions because of the wave of supply growth. With the typically slower winter months approaching and the supply wave set to continue through 2025, advertised rent growth in those regions will likely stay weak in coming months,” Yardi Matrix wrote in the report.
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