The Everest Equity Company, Inc. - RESIDENTIAL / COMMERCIAL MORTAGES

The silver lining of today’s economic uncertainty? Multifamily owners are thriving.

Here’s why higher rents is good news for the commercial real estate community.

Sky-high gas prices. Soaring grocery bills. Historic inflation.

Yep, it’s expensive to live in America today! The headlines can be downright frightening—especially if you’re pursuing investments in the rental space.

Those operating in the multifamily market may wonder:

Will tenants be able to afford the cost of rent? Will they renew when the current lease expires? Will my units sit empty? Will I have to offer incentives?

Cost of living is a huge concern for everyone. Still, it’s important to remember that a bad economy tends to affect the housing market more than the rental market. In times of recession, for instance, many people prefer to rent instead of committing to a big home purchase.

Not to mention, today’s unprecedented housing demand has helped propel multifamily rents even higher. Let’s discuss!

Rents on the rise

According to a recent Yardi Matrix report, U.S. monthly apartment rents increased in May 2023, signaling positive growth for three months in a row. Check out the story in numbers.

Yardi Matrix Report, May 2023

The average U.S. asking rent rose by $7 in May 2023 for a total of $1,716.

U.S. asking rents are up an average of $18 (or 1%) since January 1st, 2023.

Year-over-year rent growth in May was relatively low at 2.6%, but still in the positive.

In May, the average single-family unit rent reached $2,100 for the first time.

Vacancies remain low with the national occupancy rate at 95% in April.

Of the renters whose leases expired in March, approximately 62% renewed.

Read the full National Multifamily Report

So, what’s it all mean?

Renting an apartment is getting more and more expensive!

It’s excellent news for landlords—but definitely bittersweet.

Many multifamily owners care deeply about their tenants and don’t want to see them struggling. Still, operators need to stay afloat too.

While we celebrate these healthy numbers, we also acknowledge that renters are experiencing some degree of relief.

“While performance displays resilience, the data is not unambiguously positive as it has been for most of the last two years,” according to the Yardi Matrix report. “Rent growth has turned negative year-over-year in several metros as occupancy rates weaken amid slackening demand and rapid growth in new deliveries.”

As the report highlights, record-high rent growth seen over the past two years is slightly cooling. And put into perspective, rents haven’t risen at the exorbitant rate of other expenses like gas, food, and utilities. This is mostly due to the ‘sticky’ fact that they’re locked in for the standard 1-year leasing period.

Therefore, the vast majority of renters will continue to prioritize their housing if economic conditions tighten in the second half of 2023. This is something hopeful investors should remember as they explore new multifamily real estate opportunities.

“We know rents are not going down, so there should be no fear of jumping in,” says Sharon Dermer, Senior Loan Officer at Everest Equity. “If the deal makes sense right now, and the property cash flows, now is the time to invest.”

Our top takeaways

The future is bright for commercial buyers as they help alleviate the current housing crisis by bringing high-quality units to individuals and families across the country.

“Whatever direction the market takes you, you’re always a winner,” says Dermer. “If the rates go up even more, you definitely did the right thing by investing and locking in now. And if the market improves, we can always refinance your loan into the current low rates. So never hesitate to invest! It’s always the right time if the numbers are looking good now.”

We look forward to helping our partners weigh their options and make the most of today’s market. Rents are on the rise—and so are you.

Check out some of our favorite tidbits from the Yardi Matrix study below, and be sure to touch base with one of our experienced loan officers soon!

Moving On Up: Multifamily Style