The Commercial Real Estate Alpha Site

The rent slowdown continues … While we typically see a small pop in rents after the calendar turns each year (and saw a sizable bump in January 2022), there was no pop in January 2023.

U.S. apartment rents held flat from December to January — which was a mild surprise. After four consecutive month-over-month rent cuts to close out 2022, we expected that pattern to continue (even if more modestly) in January.

Still, for the more-watched year-over-year rent change, there’s a big impact from replacing Jan 2022’s big bump with Jan 2023’s goose egg. Year-over-year asking rent growth for new leases measured 15.1% this time one year ago… and now it’s at 4.99%. First time below 5% since May 2021.

Why are rents cooling off so fast? Well, it’s simple supply (more of it now) and demand (less of it now). After the big demand freeze (for ALL housing types– not just apartments) in the second half of 2022, apartment occupancy dropped to 94.8% as of January 2023. That’s the lowest rate since February 2018, and it’ll likely dip lower by year end. Even if demand meaningfully improves (and there are signs that IS happening), it’s unlikely demand can keep pace with the 40-year high in new apartment supply scheduled to complete this year.

Of course, this doesn’t mean the sky is falling. The long-term tailwinds for multifamily (and rental housing more broadly) are still very much intact. The discount to rent versus buy (entry costs for a new renter versus buyer) is higher than ever. Demographics remain favorable, and unemployment is at 50-year lows. And after big job growth last year coupled with very little housing demand, there’s certainly pent-up demand out there that will be unleashed as people feel better about the economy and their place in it.

But that being said: 2023 could be a tough year, especially for Class A apartments in or near downtown neighborhoods (all across the country) competing with this big wave of new lease-ups.

There’s more to Jay Parson’s research and findings and to digest the complete article, CLICK HERE <——

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