Multifamily markets that have experienced high supply and negative rent growth may soon be on the road to recovery. According to CBRE’s latest research, occupancy rates have stabilized across these markets, with renter demand absorbing a lot of this new supply.
CBRE said it expects the negative rent growth trend to reverse in these markets as demand outpaces supply, which will help boost occupancy rates and rent growth. It is already seeing this in downtown submarkets of Atlanta; Austin, Texas; Orlando, Florida; and Phoenix.
It predicted that nearly all high-supply markets with negative rent growth will see positive growth and stable vacancy rates by mid-2005. Austin is the exception, where a substantial increase in new suburban supply may sustain negative growth until 2025’s third quarter.
According to CBRE, overall property values have appeared to stabilize and capitalization rates are expected to fall now that the Fed has started to cut interest rates. The Federal Reserve Open Market Committee cut interest rates for the first time in four years on Sept. 18. A softening labor market and cooling inflation contributed to the 50-basis-point rate cut.
As higher multifamily occupancy rates lead to rent growth, property values are expected to climb, even in markets with current high supply and negative rent growth. Many of these markets are poised to lead the recovery in property values ahead of the overall market, noted the research.
“As demand outpaces new supply and occupancy rates stabilize, we are seeing a brighter light at the end of the tunnel for multifamily markets with high supply and negative rent growth,” said Matt Vance, Americas head of multifamily research for CBRE. “Positive growth and increased property values are on the horizon.”
