The average U.S. multifamily rent recorded the largest one-month decline in over a decade.
Report highlights:
• Multifamily rent movement turned negative in November, down $9 to $1,719; the average asking rent rose 7% year-over-year, and 6.4% year-to-date.
• National occupancy remained strong, at 95.6% in October.
• The decline in rents was driven by the high-end Lifestyle segment, down 0.8%; rents in the Renter-by-Necessity segment slid 0.2% in November.
• The SFR market mirrors the multifamily trend—the average rent decreased $5 in November, to $2,091, a 5.9% year-over-year increase.
Economic headwinds affected rent growth in November
In the middle of the fourth quarter, rent growth in the sector turned negative, with national asking rents down $9 to $1,719 in November. Rent growth marked a 7% year-over-year increase, down to the lowest level in 17 months. On a year-to-date basis, rents were up 6.4%. Indianapolis—a metro that would have barely made it into the top 20 metros just a few months ago—took the leading spot among Yardi Matrix’s top 30 metros, up 11.4%.
The decline in rents was anticipated and does not necessarily stand as a sign of a deep recession. Still, according to a survey by the National Association for Business Economics, the chance of a recession to occur in 2023 is highly probable (more than 50%), as responded by a majority of economists.
Average asking rents rose by a hefty 22% nationally between January 2021 and October 2022, highly unsustainable under optimal conditions and even more so now, when the inflation rate rose to decades-high levels. Absorption remained positive in 2022, but lagged the 2021 levels, as the $2 trillion in excess savings that helped households maintain strong consumer spending are slowly running out. All Yardi Matrix’s top 30 metros maintained a positive year-over-year rent growth.
High-end lifestyle units drive rent decline; Occupancy stable, above 95%
On a monthly basis, asking rents fell 0.5% in November, down by 0.8% in the Lifestyle segment and by 0.2% in the RBN division. This decline marks the largest monthly drop since the global financial crisis. The seasonal pattern adds to the effects of high inflation that has weakened consumer sentiment and housing demand. Monthly rent gains were recorded only in New York (0.4%) and Indianapolis (0.3%). Of the 26 metros that posted monthly declines, Boston (-1.3%) and Las Vegas (-1.2%) marked the largest drops, but demand started to dwindle in high in-migration markets like Austin (-0.8%) and Atlanta and Denver (both -0.9%).
National lease renewals dropped to 60.4% in October (from the 68% peak in the fourth quarter of 2021). Philadelphia (75.6%), Kansas City 968.4%), Miami (65.3%) and Indianapolis (64.2%) posted the highest lease renewal rates, and San Francisco (43.9%) and San Jose (47%), are among the lowest. Meanwhile, national renewal rents increased 11.3% year-over-year through October. The highest renewal rents were recorded in Miami (19.1%), Tampa (18.8%), Raleigh (16.8%) and Orlando (16.2%).
The average occupancy rate for stabilized properties declined 60 basis points year-over-year through October, to 95.6%. The biggest declines were registered in Las Vegas (-2.5% to 93.6%), Tampa (-1.9% to 94.8%) and Phoenix (-1.9% to 94.1%).
Single-family Built-to-Rent industry mirrors multifamily performance
The asking rent for SFRs increased 5.9% year-over-year in November, to $2,091, 85 points below the rate recorded in October. The occupancy rate also continued to slide, down 1.4% year-over-year through October, but still strong at 95.9%.
Despite the national decrease, 10 metros reported asking rent gains of 10% or more, led by Sacramento and Washington, D.C. The rising interest rates impact the SFR industry as fewer SFR tenants afford to buy a home. Supporting this statement, John Burns Real Estate Consulting reports that in the third quarter of 2022, 17% of SFR tenants moved out to buy a home, fewer than the 23% recorded in the third quarter of 2021, and the 26% registered in the third quarter of 2020.
Read the full Matrix Multifamily National Report-November 2022
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