Based on CBRE's latest research, the U.S. multifamily sector is beginning to stabilize as vacancy rate expansion and negative absorption ease -- trends that are expected to continue in 2023.
The overall multifamily vacancy rate increased by 30 basis points (bps) quarter-over-quarter in Q1 2023 to 4.9%. This was less than the 70-bps increase in Q4 2022 and the 90-bps jump in Q2 2022.
Negative net absorption of 1,900 units in Q1 2023 marked an improvement from the previous quarter's negative 14,000 units, and CBRE expects that absorption will turn positive in Q2 2023.
"The multifamily sector has been in search of stability after experiencing two significant shifts. First, the Fed began raising interest rates rapidly and then multifamily fundamentals abruptly changed course as supply growth began to outstrip demand. The good news is that the data over the past six months suggests the market is stabilizing," said Matt Vance, Americas Head of Multifamily Research for CBRE. "Vacancy is still climbing, but much less quickly as demand regains its footing."
The average monthly net effective rent increased by 4.5% year-over-year in Q1 2023, down significantly from the record 15.3% increase in Q1 2022, but well above the pre-pandemic, five-year average of 2.7%.
New construction deliveries of 58,600 units in Q1 2023 brought the four-quarter total to 332,200--slightly lower than the annual total of 343,300 in 2022. Construction timelines remain elevated and should help smooth out the delivery of the significant pipeline of new products underway.
Q1 2023 Multifamily Sector Highlights: