According to a new report from RealPage, apartment rents have remained flat for the past few months as apartment supply hit record levels. Specifically, apartment supply hit a 36-year high in 2023 due to construction projects that started in a different leasing environment. With nearly 440,000 units completed in 2023 and more to come in 2024, renters now have more options, and rent growth has flattened. 

Source: RealPage (January 2024)

“Markets across the Sun Belt and Mountain regions added the most new supply in 2023, as is typical. And the same markets saw the most demand. In fact, the Sun Belt and Mountain regions combined to add 62% of the new supply while claiming 70% of the national apartment demand pie. And in the Northeast and Midwest regions, the supply/demand shares were more balanced. But on the West Coast, it was a different story. The West Coast took 10% of the nation’s new apartments in 2023, but only 4% of the net new demand.”

Leslie Shaver of Construction Dive reports on apartment starts, highlighting that in November, housing starts for buildings with five or more units dropped 33.7% YoY to a seasonally adjusted rate of 404,000 but rose 8.9% from October. Developers pulled permits for 435,000 apartments, a 21.3% YoY drop, and completed 472,000 units during the month, a 26.5% YoY increase.

Will Parker of the Wall Street Journal (subscription required) reports on this topic, noting that the apartment rental market has finally stopped rapid rent growth in 2023, with the trend likely to continue in 2024. This relief for tenants has come from a surge in new supply that has pushed the vacancy higher, making it harder for landlords to raise prices. 

Parker reports that rents for new leases rose more than 20% during two years spanning 2021 and 2022. However, real-estate firms and data companies are projecting total rent growth in the very low single digits this year, with Yardi Matrix predicting rents will rise 1.5%, while CBRE estimates growth of 1.2%.

Yardi Matrix released its 2024 U.S. Multifamily Outlook recently, highlighting that the multifamily market in 2024 may face challenges from a wave of deliveries, rapid growth in expenses, and a potential economic slowdown. However, the U.S. economy remains resilient, leading to strong demand for housing. Rent growth is expected to be positive, led by the Midwest, Northeast, and smaller Southern and Mountain areas, while Sun Belt and West markets may experience a temporary pause in rent increases due to a large number of units coming online.

Source: Yardi Matrix (January 2024)

Jobs report

Last week saw the release of the monthly jobs reports, with Paul Davidson of USA TODAY reporting that the U.S. economy added 216,000 jobs in December, beating economists’ forecast of 175,000 in a Bloomberg survey. The unemployment rate held steady at 3.7%. However, job gains in October and November were revised downward by 70,000.

CBRE reports on the jobs data, commenting that it showed job gains in government, leisure and hospitality, and health care, but a significant loss in transportation and warehousing. The unemployment rate remained steady at 3.7%, while the labor force participation decreased slightly. Hourly earnings growth remained strong. However, job additions in 2023 were lower than in 2022. Economic uncertainty is expected to affect commercial real estate investment and leasing activity in the first half of 2024, according to CBRE.

“The multifamily sector is expected to remain resilient, as high mortgage costs make renting more favorable. While a resilient labor market also provides a tailwind, slowing growth may reduce household formation in the coming quarters.”

CNN’s Alicia Wallace, Bryan Mena, Krystal Hur, and Elisabeth Buchwald report on the jobs data highlighting that Richmond Federal Reserve President Thomas Barkin noted that “if the United States economy slows more this year, employers will be more reluctant to let workers go.” Barkin states that: “I do believe that there’s going to be more labor hoarding than there was [in prior downturns].”

Source: Bureau of Labor Statistics (January 2024)

VCs and institutional investors

2023 was a soft year for institutional and venture capital investors. According to Kayla Carmicheal of Bisnow reports that proptech is now struggling to survive as funding has decreased by 42%. To keep the sector going, startups need a lifeline. In the past few years, proptech startups raised billions of dollars from investors eager to invest in the next big idea that would disrupt the sector.

The Financial Times reported last week that private equity companies face challenges in finding buyers for their portfolio companies for various reasons. The lack of successful IPOs and high valuations for private equity portfolio companies have contributed to the US’s decline in asset sales value. However, the industry still has a significant amount of committed money or “dry powder” to call on if attractive acquisition opportunities arise.

Similarly, George Hammond of the Financial Times reported that US venture capital firms raised the lowest amount of funds since 2017, having a 60% drop from the peak year of 2022. This decline is causing pressure on start-ups that depend on such backing for survival. Globally, venture investors raised the lowest level of capital since 2015. VCs are hesitating to invest more money in businesses they backed at the top of the market while private tech valuations are declining.

Source: Financial Times (January 2024)

“The value created by start-up exits in the US last year was just $61.5bn, compared to a 2021 peak of $797bn, according to PitchBook and the NVCA. In Europe, start-up exit value amounted to less than €12bn across the year, the lowest level for a decade.”

And the pain isn’t over yet, according to Alex Wilhelm of TechCrunch: “Even though news of potential interest rate cuts has led to optimism that the IPO window might reopen and things might improve in startup land, it appears the global venture capital market has yet to level out: Early data from PitchBook indicates global VC investment in startups continued to slide in the fourth quarter of 2023.”