CBRE reported that record high apartment absorption over the last 4 quarters set the basis for very strong measures of performance for the multifamily property market.
Comparing universes
CBRE gathers its data from 69 markets that it tracks, but some of its averages are developed from data collected from a subset of 63 markets. While CBRE bases its calculations on changes in “same-store sales” as do other analysts such as Apartment List and Yardi Matrix, the choice of which markets to include in the analysis affects the results reported. For example, the CBRE report indicates that the national average apartment rent in Q1 was $2,007 with year-over-year rent growth of 15.5 percent, Apartment List has national average rent at $1,326 with rent growth of 16.4 percent, while Yardi Matrix has national average rent at $1,659 with rent growth of 14.3 percent. The different sources report different results because they look at different sets of data.
Looking at the drivers
Net absorption of apartments reached 96,500 units in Q1 2022 and 695,100 units over the last 4 quarters. The Q1 figure is the highest for a first quarter of the year since 2000, while the 4-quarter figure is a record high. Despite the supply of new units over the last 4 quarters reaching 292,500 units, the highest level since 1987, the unprecedented absorption of apartment units pushed the national average vacancy rate down to 2.3 percent.
The leading metro for apartment absorption over the last 4 quarters was New York City, followed by Houston, Dallas and Austin. Absorption in New York City was over twice the number of units absorbed by the next-highest metro and was over 4 times the number of new units delivered to the New York City market.
As absorption surged and the vacancy rate plunged in 2021, rents soared. The 15.5 percent rate of year-over-year rent growth CBRE reported for Q1 is a new high. The positive rent growth in Q1 also marks 4 successive quarters of positive rent growth for multifamily property. This period follows 4 quarters of declining rents after the pandemic-inspired restrictions on the economy were imposed in 2020.
Multifamily investment booms
CBRE reported that investment in multifamily property declined in 2020 with the onset of the pandemic, but it rebounded sharply in 2021, jumping to $350 billion. This was up significantly from the investment volume of less than $200 billion recorded in 2019.
The year 2022 is off to a strong start with $63.0 billion of multifamily property investment in Q1, a record for the quarter. Multifamily property represented 37 percent of commercial real estate investment in Q1.
The leading metros for multifamily investment over the last 4 quarters were Dallas, Atlanta and New York City.
As multifamily property investment volume has increased since 2009, the cap rate for multifamily property has continued to fall. Starting from a high of over 7 percent in 2009, the average cap rate dropped to below 4.5 percent in Q1 2022.
The full report contains much more information on regional differences in results and more data on other metros not mentioned here. It is available here.
