Gray Report Newsletter: December 7, 2023

Chill Sets in for Multifamily Borrowers

With rent growth reports showing near-zero percent rent growth for the year, multifamily borrowers, investors, and operators face continuing challenges that will require active solutions rather than passively waiting for a more favorable interest rate environment. With the year-end approaching, apartment operators and asset managers will have a full reckoning of the significant expense increases in the multifamily space in 2023, which, unlike in 2022, will not be off-set by any meaningful rent growth for the year. Similarly, there is little reason to expect that last-minute deals will buoy the low sales activity in the multifamily market, but investors should look for opportunities to emerge in 2024 as these persistent challenges change the calculation for property owners unable to “survive until 2025.”

Multifamily, the Nation, and the Economy

Apartment Rents Remain Flat, and Could Be for a While

RealPage: Apartment rent growth has been rapidly cooling off since peaking in March 2022. But that trend could be leveling off – at least for now,” but a 12-month-strong trend of wages outpacing rent growth—with little sign of abating—”could erase all of the rent-over-wage bump of 2021 and early 2022, and in turn help further widen the demand funnel.”

Multifamily Markets and Reports

Nov. 2023 National Multifamily Report: Rent Down Slightly while Occupancy Ticks Up

Via Yardi Matrix: “Multifamily rents dipped in November, with the short-term outlook clouded by inflation, cooling job growth and the Sun Belt’s heavy delivery pipeline. A longer view, however, is more bullish, due to extraordinary rent growth over the last three years and prospects that demand will continue to match supply.”

Multifamily and the Housing Market

7 Predictions for the 2024 Rental Market

Via Apartment List: Even more apartment supply, “low single-digit rent growth,” expanding renter population due to high homeownership costs, persistent work-from-home conditions, and robust growth in the Sun Belt are among the trends to watch next year.

Commercial Real Estate and the Macro Economy

United State Office Market Overview

Via Newmark: “The United States office market continued to soften through the third quarter of 2023. Leasing activity slowed, nearing 2020 levels, as occupiers wrestle with a still uncertain economic outlook even as they right-size their portfolios for hybrid work.”

Other Real Estate News and Reports

National Industrial Report, November 2023

Via Yardi Matrix: “Performance continues to be mixed by region, with close to an even mix between metros of year-over-year gains and losses. Among the Matrix top 30 metros, the Northeast and Midwest remain rent growth leaders, while Sun Belt and West metros lag.”

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