Skip to content

Balancing Fall In Rental Prices With Rise In Supply

Surge in property supply. Increase in rental options

Balancing Fall In Rental Prices With Rise In Supply

The multifamily market has undergone significant changes recently, leaving property managers wondering how to maximize their portfolios and ensure a consistent return. The economy’s slowing pace, combined with the high supply of new properties, has posed fresh challenges, with some metros outperforming others.

Although there was a momentary drop in rental prices during the COVID-19 lockdowns and the recession affecting demand, rents have not shown negative annual growth in over a decade. However, the market has witnessed a rental drop in a healthy multifamily market. Nationally, occupancies are high at 94%. The consistent interest rate hikes, combined with high home prices and a very tight supply, have also managed to keep potential buyers in the rental market.

So what is leading to this change? It is the massive number of apartment supply that has hit the market.

The number of newly completed apartments hitting the market this year has reached an all-time high of more than 460,000. In the past three years, over a million new units have been built, which has led to an increased supply of rental options for tenants, resulting in lesser pricing power for landlords. This trend is expected to continue until next year, bringing rental prices down until 2025. However, the construction of new apartments has dropped significantly this year due to financing challenges, indicating that this surge in supply will continue beyond 2026 and onwards. This gives rental prices some hope of recovering the losses. The average U.S. asking rent has seen a significant downturn in September, marking the first time since the post-pandemic resurgence in early 2021 that rents have decreased, with the annual growth rate plummeting.

Let’s break down the implications on the Multifamily sector:

These shifts have profound implications:

  • Oversupply and Its Repercussions: An influx of new properties can saturate certain metros, potentially driving down the average rental prices.
  • The Vacancy Challenge: A saturated market can lead to an uptick in vacant properties, thereby denting the revenue streams of property managers.
  • Investor Hesitancy: Economic slowdowns often dampen investor enthusiasm, potentially stalling the initiation of new multifamily ventures as mentioned for the year 2026 and onwards
  • Demographic Flux: Economic tribulations can reshape the renter demographic too

How can Asset Managers weather this change?

To adeptly navigate this evolving terrain, property managers must employ a multifaceted strategy:

  • Comprehensive Market Analysis: Get all the data and insights into local economic indicators, employment trajectories, and other pivotal factors that mold demand.
  • Portfolio Diversification: Consider spreading investments across diverse metros to mitigate risks and also build a stronger portfolio while the opportunity lasts. Build adaptability to pivot based on fluctuating market conditions swiftly, be it divesting from saturated markets or capitalizing on burgeoning ones.
  • Local Connections: Foster collaborations with local realty professionals and domain experts to glean nuanced insights into the regional market.
  • Value-Enhancement Prospects: Scout for properties ripe for refurbishment or those that can be augmented with superior amenities as it will keep you in the same geography and potentially in the same demographic
  • Regulatory Compliance: Remain abreast of regional regulations, encompassing rent control measures, tenant entitlements, and developmental guidelines.
  • Technical Support: Deploy sophisticated data analytics tools to procure real-time insights on rental dynamics and occupancy trends.
  • A Long-Term Vision: While short-term metrics are pivotal, especially when they can move the market to this extent, let’s not deviate completely from the long-term plan that was always in place. It’s imperative to gauge the enduring growth trajectory of a metro and revise it accordingly.
  • Engaging the Local Community: Foster robust ties with the local populace to discern their housing preferences and needs.
  • Robust Financial Planning: Ensure a sturdy financial buffer to weather phases of diminished rental inflows or heightened vacancies.
  • Macro-Economic Trend Awareness: Recognize that overarching economic trends, like interest rate fluctuations and national employment patterns, can profoundly influence the multifamily sector.

The multifamily sector is facing a pivotal moment that demands a decisive approach to tackle economic fluctuations and regional complexities. To emerge as winners, asset managers must take a proactive and assertive strategy, leveraging rigorous research, innovative technology, and deep community partnerships. Only through this approach can they expertly maneuver through these challenges and achieve sustained success in the multifamily realm.

RealSage provides up-to-the-minute market insights, empowering asset managers with a nuanced grasp of the changing rental patterns, vacancy dynamics, and other crucial indicators across diverse metropolitan areas. Leveraging its powerful suite of analytical reports focused on key performance indicators, asset managers are equipped to anticipate market shifts, ensuring strategic decisions that pave the way for future profitability.

Book a demo :

Other Resources:

Request Demo