As the economy continues to recover from the pandemic, the real estate market is experiencing some interesting shifts. One area that has been closely monitored is the apartment market. Glenn Mueller, a real estate professor at the University of Denver, has released his latest forecast on where apartments stand in the market cycle.
According to Mueller’s report, apartment occupancies are expected to be flat at peak-equilibrium levels in the first quarter of 2023. However, there will be a slight year-over-year decrease of -0.3%. This is due to a new space supply boom in 2022 that is pushing occupancies down in many of the fast-growing second-tier markets. Mueller predicts that 14 markets will be in the hype supply phase of the cycle by 1Q23. This is a result of the strong supply response of the economy re-opening.
Although demand growth is expected to settle back down to the more long-term average of 75,000 units per quarter, the national apartment asking rental rate is expected to increase by 2.3% in 1Q23. This increase is higher than the 12.3% experienced in 2021. Mueller forecasts that the national apartment asking rental rate will be up 15.9% year-over-year.
It is important to note that the 10 largest apartment markets make up 50% of the total square footage of apartment space monitored by Mueller. These markets include New York, Los Angeles, Chicago, Dallas, and Houston, among others. Mueller predicts that the weighted national average will be affected by these markets.
Overall, Mueller’s forecast provides valuable insights into where apartments stand in the market cycle. The hype supply phase in many second-tier markets may lead to lower occupancies, but the national apartment asking rental rate is expected to increase. Real estate investors and professionals should take note of these trends and adjust their strategies accordingly.