Long a darling of the commercial real estate industry, the rental housing market is showing warning signs, as slowing rent growth and demand, higher interest rates, and greater operational expenses test multifamily owners and developers.
The U.S. apartment market absorbed 90,827 units in the third quarter, according to RealPage Inc. While that’s an improvement from the negative absorption seen throughout 2022, the approximately 1 million apartments under construction nationally as of the third quarter is still outpacing demand and tempering rent growth in many markets.
As of the third quarter, rents nationally were up about 2% year-to-date, RealPage found, though the data-analytics firm predicts the year-end 2023 figure could come in below that amount.
That, on top of underwriting loan standards written during a different economy and multifamily market, will create financial headwinds for some owners in the coming quarters and years, especially for deals financed in the past two years with floating-rate debt. It’s likely to cause more lenders to pull back from the multifamily sector.
