The rental apartment market is poised to experience an unprecedented surge in supply this year, with the construction of multifamily units reaching levels not seen since the 1980s. According to Census data analyzed by CoStar Group, a commercial real estate services and analytics firm, approximately 520,000 new multifamily units are expected to enter the market in the near future.
This construction boom is not a fleeting trend but rather a sustained movement, as CoStar predicts an additional 457,000 units to become available next year. However, the increased supply will likely outpace demand, resulting in rising vacancy rates and sluggish rent growth. CoStar’s apartment listings website Apartments.com has affirmed this prediction in their recent report.
Interestingly, this surge in rental construction comes at an unconventional time for the housing market. Similar to the for-sale housing sector, the rental market experienced a slowdown after the initial pandemic-induced frenzy.
This influx of supply will reshape the rental apartment landscape, offering prospective tenants a wide range of options to choose from. As vacancy rates rise and rental prices remain stable, renters can take advantage of this shift in the market and find their ideal living space with greater ease.
Rental Market Trends in the US
The rental market in the US is facing unique challenges that are impacting both supply and demand. While the for-sale side is experiencing a slump due to higher mortgage rates, renters are dealing with a different set of factors. The rapid rise in apartment prices during the pandemic, broader inflation concerns, and worries about a possible recession have all contributed to a slowdown in the rental market.
Although demand has shown some improvement in the second quarter, it has not been enough to offset the oversupply of rental units. According to a report by Lybik, despite positive absorption and increased renter demand, the national vacancy rate was pushed higher by the delivery of 140,000 new units during the quarter.
However, not all rental markets are experiencing the same slowdown. Cities like Cincinnati, Columbus, and Chicago have witnessed significant rent increases compared to a year ago. The main reason behind this trend is the lack of new construction in these markets, as Lybik points out.
On the other hand, previously-hot markets like Austin, Las Vegas, and Phoenix have seen the biggest declines in rents. Lybik attributes this drop to an overcrowded market caused by developers rushing into these sunbelt regions simultaneously. The excessive construction activity has resulted in a crash in these markets.
It is evident that the rental market in the US is facing distinct challenges depending on the location and construction activity. While some areas have seen rent growth due to limited supply, others are struggling with oversupply and falling rents. The future trajectory of the rental market will largely depend on how these factors evolve.
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