Multifamily markets that experienced a surge in new developments—and the accompanying downward pressure on rents—are showing early signs of recovery. Occupancy rates are stabilizing, with renter demand now absorbing much of the previously overwhelming supply.
Stabilizing Occupancy Rates Amid Negative Rent Growth
Over the past year, high-supply markets have faced significant challenges, with nearly 70% of their multifamily inventory reporting negative rent growth as of Q2 2024. For comparison, low-supply markets experienced negative rent growth for just 26% of their inventory, slightly above typical levels. Despite these hurdles, even the hardest-hit areas report nearly one-third of their inventory showing positive rent growth.
This indicates a turning point. As renter demand starts to outpace the influx of new units, occupancy rates are climbing, creating momentum for a shift toward positive rent growth.
Sun Belt and Mountain Markets Lead Recovery
Markets like Atlanta, Austin, Orlando, and Phoenix are already experiencing a recovery in their downtown areas. Historically, Sun Belt and Mountain regions bore the brunt of negative rent growth due to a wave of new construction driven by high in-migration. Developers raced to meet demand, leading to temporary oversupply.
However, vacancy rates in many of these markets have peaked. Rent discounts, which were previously necessary to fill units, are beginning to taper off as renter demand catches up. By mid-2025, most high-supply markets are expected to see positive rent growth and stabilized vacancy rates.
Austin remains a notable outlier, where suburban developments continue to grow rapidly. Analysts predict sustained negative rent growth here until at least Q3 2025.
Multifamily Property Values Stabilize
The multifamily market’s recovery extends beyond occupancy rates and rents. Property values, which had been under pressure, are showing signs of stabilization. Capitalization rates are expected to decrease following anticipated Federal Reserve interest rate cuts.
As rents and occupancy rates improve, multifamily property values are set to climb, further signaling a recovery in even the most oversupplied markets.
A Bright Outlook for Multifamily Markets
Despite challenges, the long-term outlook for high-supply multifamily markets is optimistic. Renter demand is set to lead the recovery, paving the way for stronger property performance and investment opportunities. With the tide turning, these markets are poised to drive the next phase of growth in multifamily real estate.
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