Expect Another Big Summer for Multifamily

Multifamily rents have increased significantly for new leases while concessions have tanked—and the sector is showing no signs of cooling off, according to a group of analysts from MRI Software. 

Two years after the onset of the COVID-19 pandemic, the multifamily market finds itself in a familiar position entering peak season: unemployment has returned to historical lows, housing demand continues to be strong, new supply continues to lag need and housing affordability is back in the headlines, the report says. These macroeconomic factors, which are normalizing as we move from pandemic to endemic, are setting up owners and operators for strong pricing power as seasonal demand peaks arrive.

MRI predicts that new lease pricing should continue to increase throughout the summer after ticking up roughly 20% over the last eight months.  Data from Yardi Matrix reveals that multifamily asking rents ticked up yet another $10 in February to hit a national average of $1,628, with year-over-year growth also posting a 15.4% increase.

 It’s already a landlord’s market, and we’re about to enter the summer season, which traditionally is the most active and lucrative season for leasing. Given the other market forces we’re experiencing, such as low unemployment, low supply of new housing, and high inflation, we can expect a challenging summer for renters.

The Pulse of the Market

Vacancy rates are declining all over. The South Bay-Long Beach area currently has a 2% vacancy rate as new renters are looking for affordability. Apartment vacancy rates also fell at least 350 basis points in Downtown Los Angeles and Westside markets. Inventory levels are still down although Orange County and San Bernardino County both saw small increases in inventory last week. Closed Sales Days on Market were extremely low in most areas with Orange County at just 8 days, Long Beach at just 13 days and San Diego County at just 12 days.

WHAT TO EXPECT
I expect that short days on the market will continue and I don’t see inventory levels increasing all that much. There are reports that suggest inventory won’t reach pre-pandemic levels until 2023 or 2024. With low vacancy factors and rents increasing, cap rates are expected to remain about the same or fall slightly. Unpaid rent debt from the pandemic should sort itself out, although it will take some time. While demand has rebounded, construction activity has not. Downtown Los Angeles will record a record decline in apartment deliveries this year.