US Multifamily Demand Picks Up Steam

Apartment demand is rising across U.S. several markets through the first half of 2023, an encouraging turn after demand underperformed last year.

Dallas-Fort Worth, Houston, Phoenix, Atlanta and Austin, Texas, all report rebounding demand. While Dallas-Fort Worth and Houston led the overall ranking, Phoenix enjoyed the biggest recovery, absorbing five times more units in the first half of 2023 than last year.

It’s an encouraging sign for all parties that renters are feeling more confident in signing a lease. Weak net absorption, or the difference in move-ins versus move-outs, in 2022 coincided with stubborn inflation and souring consumer sentiment.

Some renter households elected to stay in place, and many were faced with tough choices about moving in with family or finding a roommate, particularly among mid- to low-tier properties. The rebound in net absorption reflects more units filled at the top end of the market but also captures fewer move-outs among mid- to low-tier properties.

In a turnaround from last year, Dallas-Fort Worth took the top place for apartment demand with 8,823 units filled in the first half of 2023. That was a 50% improvement from the same time last year and within the average range from 2013 to 2017 of 8,751 units. Demand remains concentrated in parts of Denton and Collin counties, areas that serve as the growth engine for the Metroplex.

Leasing momentum in Houston also rebounded during the first two quarters of 2023 with about 7,500 units absorbed. That is double last year’s amount during the same period and slightly above the typical pace for the first half of a year between 2015 and 2019.

Demand remains concentrated in supply-heavy areas both within the urban core, such as Downtown and River Oaks, as well as in fast-growing suburbs to the northwest, including Bear Creek-Copperfield, and to the southwest in areas such as Sugar Land-Missouri City and Richmond-Rosenberg.

The inflation rate for everyday items, such as groceries, restaurant meals and alcoholic beverages, has been substantially higher in Sun Belt markets than in the rest of the U.S. and reached double digits last year in Houston. One encouraging sign is that inflation in Bayou City fell to 1.8% in June, the first time it has fallen below 2% since March 2021.

It is now slightly below its historical average of 2.1%. Furthermore, the job market remains tight with unemployment at 4.4%. Easing inflation and slowing concerns of a lingering recession in Houston should bode well for potential renter confidence.