Apartment Trends to Watch in 2023

The market is always shifting, and we enter troubled economic waters, here’s what investors and owners should know about ongoing apartment trends.


Main Takeaway: There has been a lot of talk about economic headwinds as we enter 2023, but the multifamily market remains a robust asset class due to demographic shifts, technology adoption, regulatory pressure on supply, and overall investor sentiment toward multifamily.

Story: Several reports over the past few months highlight the trends that multifamily owners and investors should pay attention to as we navigate troublesome economic times. These include a rise in household formation putting upward pressure on apartment demand, the increase in technology solutions that improve the renter experience, the reduction of supply due to aggressive regulation, and overall positive investor sentiment. 

Here are the highlights of some of the more interesting trends we should be paying attention to as multifamily owners and investors.

Demographic Shifts

According to a new PwC report, a four-generation surge is currently underway which is skyrocketing household formations. As many will be priced out of the purchasing market due to record high prices and interest rates, many of these families will look to rentals. PwC predicts this demographic trend will buoy multifamily fundamentals well into 2030.

Broad-stroke household demographics point irrefutably to strong secular demand for multifamily rental apartment development. During the 2022-to-2035 stretch that lies ahead, 275 million adults —the total of all the adult-aged generational cohorts—will continue to make shelter decisions, especially as U.S. domestic migration and mobility continues at over 27 million movers (approximately 8 percent) each year. Financial factors—given that runaway costs and high mortgage interest rates will price more households out of homeownership as an option—will determine many of their decisions, as has long been the case.

Indeed, a new Barkadia report highlights this trend, finding that workforce and median household income is set to expand, supporting job creation and consumer confidence to move out on their own and form more households. According to the report “with interest rates continuing to rise, and not a meaningful decline in single-family homes, we expect more individuals to choose to be renters in lieu of homeowners. This will further support the strong net absorption projections as well.”

Fannie Mae predicts that with an increased construction pipeline, vacancy rates will slowly rise into 2023 and 2024, but that rents will also continue to increase slowly over the same time period due to strong demand.

Technology, Technology, Technology

It’s all about technology in the multifamily industry these days. PwC found that “exponential advances in technology, data, and artificial intelligence capability and applications will impact building-cycle, property operations and management, and resident experience cost-versus-value models.”

As cap rates rise and NOIs get squeezed, managers and owners will continue to look to technology to decrease operating expenses and improve the renter experience and retention.

According to a Zego report, modern living features like building technology are why renters renew their leases. When turnover costs upwards of $4,000 per unit, renter retention will be critical in 2023 as rents moderate. When asked which apartment and community amenities renters are most interested in, 3 of the top 5 revolved around technology and access control.

Emily Burke of Moved comments on this trend, noting that:

Technology is a must for any business. Especially if you’re in the multifamily industry, where hospitality first is the way of life. And with property technology (proptech) now an expectation rather than a perk, it’s more important than ever to have the right tech stack for your communities.

Impact of Regulations

Regulations account for a full 40% of multifamily development costs. The irony is that these impediments to development negatively impact supply by delaying or avoiding altogether new apartment supply that is desperately needed. 

Although we can all agree that some form of regulation is important, excessive and expensive ones will limit supply and put upward pressure on values. This unintended consequence of overly restrictive regulations will put upward pressure on values throughout 2023 and beyond.

Investment and Construction Sentiment

Despite a record supply pipeline for new apartment construction, real estate professionals are highly bullish on the investment and development prospects of multifamily assets into 2023. Outside of only industrial and distribution assets, the sentiment for multifamily was the highest among investors surveyed by PwC.

Further, when you distill down the different multifamily asset classes, moderate and workforce housing apartments have the most favorable sentiment among investors.

“Despite market uncertainty and persistent inflation, multifamily remains a strong and resilient asset class compared to other asset classes. Our Forecast Report factors in a potential recession. The expected surge in apartment deliveries in the coming year may create pressure in certain submarkets, but generally we expect occupancy rates and rent growth to remain strong and stable. We expect investor demand to pick up in the second half of 2023. While we are beginning to see cap rates expand given what’s happening in the debt markets, we believe there needs to be more pricing transparency before more investors move off the sidelines. Once pricing moderates, we believe this will give investors more confidence and ballast to start investing again.” — Hilary Provinse, EVP at Berkadia

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