The year 2023 turned out to be a strong one for the multifamily housing sector, even as the broader housing market slowed down.

After a blistering couple of years of rent growth during the pandemic, 2023 saw rents moderate but vacancy rates remain extremely low across most major metro areas.

The year started off with trends from 2022 carrying over – high demand and low supply kept pushing rents up at double digit paces early in the year.

However, around mid-year the pace of rent growth clearly started decelerating across the country.

Recession Fears

One factor was rising recession fears putting a bit of a damper on household formation and rental demand. Additionally, the supply-demand imbalance started to ease just slightly as more supply came online.

By the end of 2023, national multifamily vacancy rates remained below 5%, among the lowest levels in decades. Rent growth is ending the year in the range of 5-7% nationally, still robust growth but down from the over 10% increases seen in 2021 and 2022.

Metro areas with the strongest job and population growth, like Austin, Phoenix, and Miami, saw the highest rent growth. But even pricier coastal cities witnessed solid rent growth as young professionals returned to city centers.

Inventory

On the supply side, 2023 saw a meaningful pickup in new apartment construction, especially in Sunbelt metros.

But permitting and construction lag well behind demand, and deliveries are not keeping pace with job and household growth. This means fundamentals should remain largely healthy going into 2024.

Financing

Investment capital and financing also remained plentiful for multifamily in 2023. Investors continue to be attracted to the sector given the healthy occupancy and rent trends plus the overall stability and appeal of multifamily. Cap rates remained largely compressed across markets and property classes.

Conclusion

2023 maintained the solid multifamily outlook coming off of 2020-2022. While there are some signs of slowing demand and an easing imbalance, the broader trends of low vacancies and steady rent growth remain constructive.

Given the outlook for still-strong job growth and demographics favoring renting, multifamily is positioned to continue outperforming other corners of the housing and commercial real estate universe.