Apartment demand will likely remain robust and rent growth remain elevated in 2022, given the current rates of absorption, rising mortgage rates in 2022, and the lower level of construction activity relative to current demand.
Demand for multifamily apartments remains strong as of the fourth quarter (as of October 19), with a net increase of 1.06 million apartment units occupied since 2020 Q2. The multifamily vacancy rate has fallen to 4.6% (6.6% in 2020 Q2) and the multifamily median asking rent is up 11.4% year-over-year (1.6% in 2020 Q2).
Texas has the top two markets with the largest number of apartment units absorbed, which are Dallas (47,182) and Houston (37,117), each of which absorbed an amount that was about 6% of the stock of apartment units. In addition to these two markets, the next top markets that round out the top 10 were New York (34,619); Los Angeles (30,879); Washington, DC (22,436); Atlanta (22,272); Chicago (20,810); Austin (20,443); Seattle (18,481); and Phoenix (16,054). Net absorption in the past 12 months is now positive in the metro areas that saw heavy losses in occupancy in 2020, namely New York, San Francisco, San Jose, and Seattle.
As a percent of the current stock of apartment units, the largest increases in metro areas that had at least 5,000 positive net absorption were Orlando, Florida (8% of stock); Austin, Texas (8% of stock); Miami (7%); and Charleston (9%).
Double-digit rent growth in a third of metros
Rents are rising at a double-digit pace in 127 out of 390 metro areas across "major" (population over 1 million), "large" (population over 500,000 to 1 million), "medium" (population over 250,000 to 500,000), and "small" markets (population less than 250,000).
Across these markets, Florida metro areas lead the pack with the highest rent growth of over 20% (Palm Beach, Orlando, Tampa, Jacksonville, Sarasota, Port St. Lucie, Fort Myers, Naples, and Punta Gorda).
Apartment market rents likely to rise at strong pace in 2022
The demand for apartment units will remain strong in 2022, as higher mortgage rates will ease the demand for owner-occupied homes and increase the demand for rentals. On the other hand, the number of units currently under construction will add to supply. Currently, there are about 650,000 units under construction , about 75,000 fewer than prior to the pandemic. This level of construction is lower than the current 12-month net absorption of 741,361, which means that vacancy rates will continue to remain tight and rent growth for multifamily units could continue to hover at about 10% in 2022.
However, the tightness of the rental market will vary by metro area. For example, there are clearly some metro areas where there significant under-construction that is going on relative to the current stock, such as Nashville, Tennessee (14%); Huntsville, Alabama (16%); Santa Fe, Mexico (28%); The Villages, Florida (32%); Punta Gorda, Florida (21%); and New Bern, North Carolina (14%). These markets are more likely to see rent growth easing in 2022 or 2023.