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The multifamily industry faces a mixed outlook in the coming year, according to Yardi Matrix’s 2024 Multifamily Outlook. While demand is expected to remain strong, challenges will come from the high level of new apartment deliveries, skyrocketing expenses, a potential economic slowdown, and the increase in mortgage rates.

National rent growth decelerated in 2023, moderating to 0.4% year over year through November from a combined 23.5% in 2021 and 2022. Yardi Matrix expects rent growth to be positive in 2024—although at a tepid 1.5% nationwide.

According to Yardi Matrix, absorption stabilized at 300,000 units in 2023 compared with 600,000 in 2021 and 200,000 in 2022. However, it projects that rent growth and occupancy will be heavily tested in the coming year, with 510,000 of the 1.2 million units under construction expected to be delivered by the end of 2024—the highest number in decades.

“We expect demand for multifamily to remain healthy in 2024, but headwinds that include slower job growth, increasing supply, and waning affordability in some markets will keep rent growth restrained again,” stated analysts.

Metros in the Midwest, Northeast, and smaller Southern and Mountain areas—where demand is consistent and new supply is more limited—are expected to lead the nation in rent growth. The 2024 rent growth forecast is led by Kansas City, Missouri; Columbus, Ohio; Indianapolis; and the Twin Cities, with expected year-over-year growth between 1.7% and 2%. New York and Chicago also are expected to continue their recoveries due to strong demand and weaker supply growth.

With concentrations of apartment deliveries in the South and West, Yardi Matrix forecasts that the rapidly growing markets in the Sun Belt will see a temporary pause in rent increases but remain bullish for the long term.

Metros that could see deliveries total more than 5% of their total apartment stock include Austin, Texas, which is projected to have 26,948 units delivered; Raleigh, North Carolina, with 14,611 units; Charlotte, North Carolina, with 15,178 units; Miami, with 22,796 units; Nashville, Tennessee, with 9,902 units; Denver, with 16,583 units; and Phoenix, with 17,788 units.

2024 is expected to be the peak for apartment deliveries, as construction starts will be depressed in all markets in the coming year due to the unfavorable financing environment and difficulty making deals pencil.

While multifamily transaction volume decreased by 70% in 2023, activity is expected to remain weak in the coming year. However, Yardi Matrix said a rebound could occur later in the year if rates stabilize.

“Lenders are being cautious, and borrowers are reluctant to lock in loans at high rates,” noted the outlook. “Maturity defaults will be a growing issue as loans come due and properties qualify for proceeds that are less than the existing mortgages.”

Another continuing issue of the industry is rising expenses, particularly insurance. The average multifamily expense per unit increased 9.3% on a trailing 12-month basis through midyear 2023. According to Yardi Matrix, as income growth slows, maintaining occupancy, operating efficiency, and cost-cutting will be at the forefront for multifamily operators.