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AIMx 2022: Views From the Rollercoaster

Q3 Brought an End to Coasting on 2021 Multifamily Demand

The multifamily industry managed to ride the wave of an historic 2021 all the way through the first half of this year, according to Jordan Brooks, Jordan Brooks Senior Market Analyst, ALN Data.

“Average occupancy remained higher than in the immediate pre-COVID period thanks to last year’s significant jump in occupancy,” he said.

“This leftover cushion allowed rent growth momentum to continue into the summer even as national occupancy trended down from its peak in November 2021 and even as national apartment demand was dramatically lower than usual.”

The downward shift that finally occurred in rent growth did not really materialize until Q3 2022, and this change was arguably the most consequential development in the quarter. 

“For all of the attention that apartment demand has been getting in the last two weeks or so since quarterly data began to be available for the third quarter, it has been clear for months now that the situation had shifted enormously from 2021,” Brooks said.

“Rent growth finally losing some steam was a major development in the third quarter, but net absorption deserves all the attention it has been getting. As already mentioned, apartment demand has been poor all year. At mid-year, 2022 net absorption was 75% lower than in that portion of 2021. Unfortunately, the picture has darkened further in the time since. ”

US net absorption in the third quarter was the worst in more than five years–lower even than any quarter in 2020.

“The fourth quarter is usually the softest for multifamily demand and the larger macroeconomic situation does not provide much reason to expect this year to be an exception,” Brooks said.

“That being the case, negative net absorption in the fourth quarter appears increasingly likely as does slightly negative average effective rent growth. Were that to be the case, national average occupancy would close 2022 having eaten through all the occupancy build-up since the onset of the pandemic.”

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