Multifamily Outlook for 2024: What to Expect
As we step into 2024, the real estate landscape is poised for a variety of challenges and opportunities. In this post, we break down highlights from Yardi Matrix’s Multifamily National Report for 2024 — including what to expect for rent growth, the overall multifamily sector, the economy and capital markets, and projected transaction volumes.
Rent Growth:
The forecast for rent growth in 2024 appears positive, albeit at a modest rate of 1.5% nationally. This optimism, however, will be tempered by various factors, including slowing absorption, supply growth, and declining affordability, following several robust years.
Multifamily Sector: A Mixed Bag:
The multifamily sector faces a mixed outlook in 2024. While property performance remains healthy for most apartments, challenges are on the horizon. A wave of deliveries, rapid growth in expenses, a potential economic slowdown, and the rise in mortgage rates are anticipated hurdles.
Economic Resilience and Market Reset:
The U.S. economy has displayed surprising resilience, driven by robust employment growth and moderate gains in consumer spending. However, economic growth is expected to slow in 2024 due to a higher-for-longer interest rate scenario. This shift will trigger a market reset in commercial real estate, characterized by higher acquisition yields, increased financing costs, and lower leverage and values.
Rent Growth Projections for 2024:
Rent growth is expected to be positive in 2024, albeit diminished by factors such as slowing absorption, supply growth, and declining affordability. Growth will be most prominent in metros in the Midwest, Northeast, and smaller Southern and Mountain areas. New York and Chicago are set for robust recoveries, driven by strong demand and limited supply growth. Sun Belt and West markets, although experiencing a temporary pause in rent increases, are strong long-term prospects.
Context: A Shift in Rental Dynamics:
In the context of recent trends, rent growth surged by a combined 23.5% nationally in 2021 and 2022. However, year-over-year growth through November 2023 slowed to 0.4%. Supply growth is at decades-long highs, with over 1.2 million units under construction. Deliveries are expected to surpass 500,000 units in 2024, concentrated in rapidly growing markets in the South and West. Despite this, a rise in construction financing is capping new starts, making 2024 a peak year for deliveries.
Challenges in Multifamily Expenses:
Multifamily expenses, notably insurance, as well as labor, materials, and maintenance costs, are rising rapidly. With income growth slowing, the industry’s focus is shifting towards operating efficiency and cost-cutting.
Peak Year for Deliveries and Transaction Volume:
It is anticipated that 2024 will be a peak year for deliveries, with supply growth remaining strong—more than 1.2 million units under construction and over half a million deliveries expected. Transaction volume faced a 70% decline in 2023 due to falling values and rate volatility, leading to pricing uncertainty. Activity is likely to remain weak in 2024, but a potential rebound later in the year is plausible if rate hikes have ceased. Lenders are cautious, and borrowers are hesitant to lock in loans at higher rates, with maturity defaults becoming a growing concern as loans come due.
The overall sentiment of the state of multifamily in 2024, as presented in this report, is that as the real estate market navigates through the intricacies of rent growth, multifamily challenges, and economic shifts, stakeholders must remain agile and proactive to seize opportunities and overcome hurdles in 2024.
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