Highlights:

  • Higher interest rates mark a structural shift in the apartment investment environment that is expected to persist through the remainder of the decade.
  • A recent surge of deliveries in locations like Austin led to an oversupply in the Class A apartment market in those cities.
  • Amid increased competition and elevated vacancy rates, rent growth decelerated rapidly in recent quarters.
  • Increased costs, particularly insurance expenses, reduced asset values and contributed to a wider bid-ask gap in the most affected regions.
  • As the U.S. apartment market has yet to fully adjust to the new normal, transaction volume declined. In many cases, investors were unable to determine true asset values in 2023, leading to a significant bid-ask spread and a stalemate between buyers and sellers.
  • A large wave of loan maturities is anticipated in 2024 and 2025, leading to further distress as borrowers face higher interest rates, higher expenses, and a bank pullback. This situation offers both challenges and opportunities for investors.
  • Despite headwinds, the market is underpinned by robust long-term fundamentals. As investors adjust to the evolving landscape, conditions should stabilize, supporting a positive long-term outlook.

Additional Insights:

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Despite some challenges that persist—such as interest rates, operating costs, and oversupply in certain markets—the apartment sector exited 2023 with increased stability and bona fide opportunities for well-capitalized investors.

Developed in partnership with Rosen Consulting Group, Lument’s first ever quarterly multifamily market report examines the ways in which the market has continued to adjust to a new economic paradigm, aided by a narrowing bid-ask gap, potential for an uptick in sales volume, and other barometers of a healthy market.

Market spotlights for Austin and Miami will follow on the heels of Apartments Update: A Market in Transition. All this valuable research is created in order to enable our clients to make faster, more informed decisions in today’s fast paced and rapidly evolving environment. It is available on our site within the Insights section by selecting “Research,” where it joins other research based materials, like our recently released multifamily investor sentiment survey report.

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