New Multifamily Housing Numbers Appear Irrelevant, With Most Investors Holding Their Breath For What May Be Ahead In 2023

Multifamily property owners may be optimistic about new rent growth reports, but in this economic climate, holding your breath is still the current mood.

CoStar Group and its Apartments.com franchise just released their first-quarter 2023 Rent Growth Report, revealing that the multifamily sector saw some improvements with vacancy rates increasing by the smallest percentage since the second quarter of 2022 and the most significant number of new units — over 1 million — ready to open since the mid-1980s. 

But regarding predictions for the rest of 2023? It’s still wait-and-see, with the next 90 days crucial. 

“We have forecasts, but the way things are right now, we may have to throw it out the window,” CoStar National Director of Multifamily Analytics Jay Lybik told Benzinga. “Last year, we felt very good about the direction we were going to go and thought it was going to be a good year, but that prediction laid an egg. Right now, we’re seeing good demand for rentals, but we remain very cautious.” 

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One factor that changed this year is rental performance in the Midwest, with Indianapolis holding the top spot for year-over-year rent growth at 6.6%, followed by Cincinnati, St. Louis and Columbus, Ohio. Those numbers usurped Sun Belt metro areas' top performance a year ago. 

“The Midwest is holding up better because it doesn’t have the supply pressure we see in other markets,” Lybik said. “But the overall theme that’s playing out nationally is the supply coming online is outstripping the demand.” 

The 104,000 units that came online in the first quarter helped increase the apartment vacancy rate by 30 basis points to 6.7%, a slight increase not seen since the second quarter of 2022. A similar study from RealPage noted that apartment construction was at over 1 million units — the most in 50 years — with half scheduled to go online this year, although it’s possible some will be delayed until next year. 

Lybik says that most of the new properties ready to open were financed two to three years ago when interest rates were much lower, and funding was more plentiful. But now, anything new beyond those currently under construction has all but stopped.

“Everyone (multifamily investors) is waiting. The uncertainty on rent growth etc. makes everyone just stop,” Lybik said. “We’ve seen a huge pullback in the amount of deals closing. Even on the development side, we are seeing a slowdown in debt financing to do construction loans. They can’t get people enough equity to start a project.”

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