Fundamentals Remain Strong for Multifamily Sector

The multifamily sector had a strong start to the year, with record-breaking leasing activity, rent growth, and investment in the first quarter, according to CBRE’s latest industry report.

In the first quarter, multifamily investment rose by 56% year over year to $63 billion, the strongest first quarter on record, bringing the trailing four-quarter total to $374 billion, reported CBRE. Multifamily also comprised 37% of total commercial real estate investment volume for the quarter, followed by office at 21% and industrial at 20%.

A record also was set for the four-quarter absorption total of 695,100 units in the first quarter, up 12% from the previous quarter and 77% higher than the previous annual record of 393,000 units in 2000. In addition, the net absorption of 96,500 units was the highest first quarter total since 2000.

“Strong multifamily fundamentals persist, with favorable migration trends, high household formation, and strong wage and job growth contributing to continued demand. An abundance of equity and debt capital remains available, albeit at significantly higher rates than enjoyed in the past few years,” said Brian McAuliffe, president of multifamily capital markets for CBRE.

However, McAuliffe added that while investors continue to have strong convictions about fundamentals, bidder pools have reduced due to the increase in offerings in the market and upward movement in cap rates is being seen as debt volatility affects pricing.

Additional highlights from the CBRE report include:

• The overall multifamily vacancy rate fell by 20 basis points quarter over quarter and 2.5 percentage points year over year to a record-low 2.3%;
• 17 markets had vacancy rates below 2% in the first quarter, led by Newark, New Jersey (1%); Madison, Wisconsin (1.1%); and Providence, Rhode Island (1.2%). Only 11 markets had vacancy rates above 3%, down from 20 in the fourth quarter of 2021;
• The average net effective rent rose 15.5% year over year to $2,007 per month;
• Average rents have exceeded their pre-pandemic levels in all but two of the markets CBRE tracks—San Francisco and San Jose, California;
• Over 400,000 multifamily units are under construction, with deliveries this year expected to surpass 2021;
• 66,400 units of new-construction deliveries in the first quarter brought the four-quarter total to 292,500, the highest since 1987;
• New York; Houston; Dallas; Austin, Texas; and Washington, D.C., accounted for the top five markets for new deliveries over the past four quarters; and
• Dallas/Fort Worth was the leading metro for multifamily investment over the past four quarters, reaching $29.2 billion in volume–double the amount from a year ago. Atlanta had the second-highest total of $21.4 billion, followed by New York with $17.7 billion.