The Commercial Real Estate Alpha Site

According to a new report from CoStar Group, the national year over year rent growth was 9.2% in the second quarter of 2022, down from 11.4% in the first quarter

Table showing year over year rent growth, by market in 2Q 2022, courtesy of CoStar Group

Table showing multifamily absorption over time, courtesy of CoStar Group

WASHINGTON–(BUSINESS WIRE)–Today, CoStar Group released the findings from its second quarter report on rent growth in the United States. According to the nationwide study, while demand is up 9.2% year over year, this figure is down from 11.4% at the end of the first quarter. These findings mark a continued downward trend in rent growth, with this now being the third quarter in a row of diminishing demand. The report also found that the vacancy rate is up 10 basis points, rising to 5% nationally.

“Combine the fact that rent prices continue to sit at all-time highs with tempered consumer demand and a record 450,000 units expected to be delivered by year’s end, and you have a perfect recipe for a sharp rise in vacancy rates in the next 6 months.”

“Rent growth moderation in the second quarter is directly tied to the lackluster demand that we have seen over the past 90 days,” says Jay Lybik, National Director of Multifamily Analytics, CoStar Group. “Combine the fact that rent prices continue to sit at all-time highs with tempered consumer demand and a record 450,000 units expected to be delivered by year’s end, and you have a perfect recipe for a sharp rise in vacancy rates in the next 6 months.”

Growth in Sunbelt and South Also Slows, But Still Exceeds National Average

While national multifamily rental growth is mostly slowing across the country regardless of city, the Sunbelt and South continued to exceed the national average, with the former holding 4 spots in the top 10 markets. Cities in Florida and Texas exhibited year over year rent growth at least 4 percentage points higher than the rest of the country, led by Orlando, which had the highest year over year rent growth in the country for Q2 at 18.7%, more than doubling the average.

Absorption Underperforming in 2022

CoStar’s report also looked at the more pressing issue of quarterly absorption rates dating back to 2018. The past three quarters have seen absorption holding in the 60,000-unit range which is well below the record totals posted last year but also below average compared to pre-pandemic figures. This is an especially notable stat given that historically Q2 records the highest absorption totals for the year.

Rents sitting at all-time highs plus the tight vacancy rate has tempered demand slightly, as potential household formations can longer afford or find an available apartment to rent. However, making a larger negative impact on multifamily demand has been rising inflation and growing economic uncertainty that has gripped the nation throughout 2022. These factors have pushed consumer confidence to record lows despite employment growth averaging almost 500,000 jobs a month year to date and unemployment sitting at just 3.6%.