Insights into the Multifamily Real Estate: Supply-Demand Imbalances 2023

In the multifamily real estate sector, there's a continuing trend of supply surpassing demand, which presents challenges for investors and property owners. This is due to developers quickly seizing the expanding opportunities in the multifamily market, with many overestimating the long-term demand for apartments.

CoStar Group data has shown that absorption in Q1 2023 was only 42,000 units, way below the five-year pre-pandemic average of 82,000. Simultaneously, 109,000 new units were supplied. Because of the supply-demand imbalance, the national vacancy rate has risen from an all-time low of 4.7 percent in Q3 2021 to 6.8 percent in 2023.

According to construction data provided by Dodge Data & Analytics , the national supply pipeline currently boasts over 1 million multifamily rental units, representing an impressive 75% increase since 2019.

This increase in supply over demand is a serious concern and is significantly impacting rental prices across the United States.

According to CoStar Group sun belt supply-demand imbalances grow. Increasing vacancy rates have led to the deceleration of year-over-year asking rent growth, from 2.8% to 1.1% over the second quarter of 2023.?

Markets in the Sun Belt, which saw the most rapid rent increase in 2021 and the early part of 2022, are now grappling with the most pronounced disparity between supply and demand. While developers are consistently rolling out a high volume of units, there's a shortfall in renter households to occupy them. Several of these markets concluded the second quarter with a decline in annual rent growth. Notably, Las Vegas and Austin had experienced a rent growth of 21.4% and 17.7% respectively by the close of 2021, but this has reversed to a negative 3.3% currently.

The increase in vacant spaces in submarkets across the country reflects the impact of slowing demand for multifamily housing and a probable surplus of supply in the near future.

With an oversupplied real estate market and a potential slowdown in demand, real estate corporations, among others, should consider adopting technology as a way to optimize and reduce operating costs.

With specialized software, organizations can:

• Automatically collect and analyze tenant data and reduce risk when implementing tiered pricing based on lease duration;
• Streamline operations, reduce overhead and operating costs with property and lease management software;
• Automate a billing system and reporting to reduce manual work and eliminate the possibility of human error;
• Invest in effective marketing campaigns targeting the right audience segments thanks to advanced analytics;
• Enhance online presence with virtual tours, reviews, and responsive websites;
• Reduce checking time for local grants, incentives, or tax breaks that might be available for serving specific community needs;
• Simplify reviewing of financial performance and adjust strategies accordingly with business intelligence (BI) tools;
• Build a centralized management system to maintain a strong feedback loop with sales and property management teams to stay informed about on-the-ground conditions.

Identifying problems and reducing operating costs, is one of the main challenges for organizations when demand is decreasing and vacancy rates are rising in the market.