Multifamily demand is expected to continue growing in the second half of 2023 and the first half of 2024, according to Newmark’s recent U.S. Multifamily Capital Markets Report.
Absorption in the first half of 2023 surged to 98,429 multifamily units, with an increase of 83,449 units in the second quarter. According to Newmark, this is nearly quadruple the absorption seen during the first half of 2022.
The first half of the year also saw a record 198,806 multifamily units delivered. Newmark projects deliveries to remain high in the second half of 2023 through 2025, with total deliveries for 2023 expected to jump 51.1% year over year. However, today’s environment of limited debt availability for new construction is expected to normalize the number of units delivered between 2026 and 2028.
In the four quarters ending 2023’s second quarter, the median market experienced inventory growth of 2%, with 10 markets out of 150 experiencing growth of 5% or greater. According to Newmark, these figures will be changing soon, with the median market’s inventory anticipated to grow by 3.2% over the next four quarters and 28 markets reaching the 5% or greater growth mark.
Other key takeaways from Newmark’s report include:
- The multifamily industry experienced positive effective quarter-over-quarter rent growth in the second quarter; this is for the first time in three quarters. However, year over year, it continues to slow and is below the long-term average. Six Midwestern markets made up the top 10 for the greatest year-over-year rent growth;
- Multifamily debt origination volumes were down 58% year over year in the first half of the year;
- Today’s high interest rate environment and price dislocation continue to hamper the investment sales market. Activity has seen a 71.8% year-over-year decline to $28.2 billion in quarterly sales;
- $682 billion in multifamily loans will mature between 2023 and 2025. Banks account for 32% of debt maturities in the full 2023 to 2032 period; however, they account for 52% of maturities for 2023 to 2025. Debt fund maturities also are similarly front-loaded, accounting for 20% of near-term maturities versus 12% in the full period, with the same being true for securitized lending. “It is troubling and, perhaps, not coincidental that these are the lending sectors that have most reduced activity of late,” stated the report; and
- Multifamily expenses continue to rise, putting pressure on operations. The 8.3% year-over-increase in the first half of the year was led by a 28.6% hike in insurance costs. In addition, management and other expenses also increased by double digits year over year. Florida markets, including Fort Lauderdale, Miami, Orlando and West Palm Beach, saw the greatest increases in year-over-year expenses, with some of the pain attributed to insurance costs rising in excess of 28% in the state.