Leasing Surge in Mid-Priced Apartments with Improved Economy

In 2023, the U.S. multifamily market has seen a significant upswing in renter demand, especially for mid-priced apartments rated three stars. This shift marks a recovery from a sluggish performance in the latter half of 2022.

A surge in demand: There has been a 77% increase in occupancy over the last year, with 260,000 more units being filled than vacated. This surge is primarily in mid-priced, three-star properties, contrasting with the disappointing absorption of only 146,000 units in 2022.

Influencing the market: The market slump in 2022 was driven by a combination of high inflation, increased oil prices, and recession fears, which significantly impacted consumer confidence and demand, especially in mid- and low-priced properties. This led to renters seeking more affordable housing solutions or delaying household formation.

Improving economy: The rebound in 2023 has been fueled by improved consumer confidence, lower inflation, strong wage growth, and reduced recession fears. These factors have notably increased the demand for three-star properties by 54,000 units in the first three quarters of the year.

➥ THE TAKEAWAY

Positive outlook: The high-end segment of the market, comprising four- and five-star properties, has remained stable, thanks to the lower rent-to-income ratio of its renter households. Looking ahead, if the economy avoids a recession, multifamily demand could return to pre-pandemic levels by 2024, although supply is expected to exceed demand for the third consecutive year.