What’s in store for multifamily investors in 2024? At a national level, multifamily real estate will continue to grapple with slowing growth in the number of new households while apartment supply surges. Rents will likely continue to grow, but more slowly than the long-run average. Meanwhile, vacancy rates are expected to stay at levels slightly above average in the post 2008 recession period, according to insights from Moody’s Analytics CRE.

One reason for optimism: a strong job market that has aided renters’ financial stability. A tight housing market with high interest rates may also continue to keep would-be homebuyers in the rental market.

That said, affordability remains an issue in many cities, said Thomas LaSalvia, Head of Commercial Real Estate Economics at Moody’s Analytics CRE. Nationwide, vacancies are expected to inch up to 5.5% this year, due to a larger-than-usual increase in new construction and slower-than-usual growth in the number of renter households, he said. That’s close to the average vacancy over the past 25 years. 

New York

The 2024 outlook for New York’s multifamily market is “largely positive” due to strong fundamentals and properties that continue to perform well, despite the market volatility seen in 2023, said Brooke Richartz, Managing Director and Senior Regional Sales Manager for Commercial Real Estate at JPMorgan Chase.

New York’s vacancy rate was low in 2023 at 3.5%, even as more than 4,000 new apartment units were built, according to Moody’s Analytics CRE. But the market is expected to gain nearly 40,000 units by 2026.

Moody’s projects New York’s vacancy rate will rise to 3.7% by the end of 2024—up, but still healthy. The surge in supply could also leave renters “feeling more emboldened” to push back on rent increases or shop around, LaSalvia said. Inflation has also put some pressure on renters’ finances, Richartz said. Moody’s expects asking rents to grow 2% this year, up from 0.1% last year but slower than prior years.

Even with more supply, workforce housing is likely to continue to perform well in New York, Richartz said. While all major cities need more multifamily housing, the shortage of affordable and workforce housing is particularly acute.

“This demand allows rents and vacancy to be more durable compared to luxury rentals,” she said. “While luxury rentals are generally performing well, rent growth is stabilizing after seeing significant growth over the last year and a half, and we see rent concessions and vacancy rates starting to increase.” 

New York’s apartment market at a glance¹

• Vacancy rate: 3.7% in 2024, up from 3.5% in 2023
• Asking rent growth: 2% in 2024, up from 0.1% in 2023
• Effective rent growth: 2.1% in 2024, rising from -0.4% in 2023
• 38,343 newly constructed units by 2026

Trend to watch

Moody’s forecasts the labor market and income growth will weaken in 2024. But unlike renters in other cities, those in New York looking to cut costs may not downsize to smaller units, LaSalvia said. “In New York where having roommates is well accepted, a weaker labor market and lower household formation—which can mean more roommate arrangements—can keep demand pressure on larger apartments,” he said.

An increase in hybrid and remote work can also make larger units, or units with access to extra common space, more attractive. Some property owners are adding more community spaces such as roof decks and yards, Richartz said. Others have added indoor communal workspaces, such as “phone booths” with Wi-Fi access—a particularly attractive amenity for renters sharing their living space, Richartz said.

Neighborhood highlights

The Bronx is “having a bit of a moment,” LaSalvia said. An influx of public and private investment over the past few years brought in new construction and new residents.

Brooklyn, on the other hand, stumbled a bit in 2023 after years of very strong performance.

“Affordability issues finally hit a head as value-focused households looked to emerging markets in Queens or the Bronx to find that ultimate mix of amenities, safety, proximity and price,” he said. 

Chicago

Chicago’s apartment market enjoyed “steady and stable” performance in 2023, said Matt Felsot, Managing Director and Senior Regional Sales Manager for Commercial Real Estate at JPMorgan Chase. That’s expected to continue in 2024, thanks to Chicago’s status as one of the country’s more affordable major cities and its strong job market, he said.

Moody’s forecasts vacancies will remain at 5.2% through 2024. Asking rents are expected to rise 2.2% in 2024 after seeing a 0.5% drop in 2023.

Slower rent growth was inevitable after rents rose more than 20% between Q4 2020 and Q4 2023, particularly given that income growth hasn’t kept pace with the rising cost of living, LaSalvia said. Chicago is also seeing slower household formation and more people moving out of the area than moving in.

Elevated interest rates and economic uncertainty have decelerated construction of new apartments in the metro area. Modest supply growth should keep demand for apartments “somewhat resilient,” LaSalvia said. Job growth of 0.3% and income growth of 3%, according to Moody’s data, should also support Chicago’s multifamily rents and vacancy levels, Felsot said. 

Chicago’s apartment market at a glance¹

• Vacancy rate: 5.2% in 2024, holding steady from 2023
• Asking rent growth: 2.2% in 2024, up from -0.5% in 2023
• Effective rent growth: 1.9% in 2024, rising from -1.2% in 2023
• 13,363 newly constructed units by 2026

Trend to watch

Lower-cost apartments outperformed luxury units last year due to a surge in construction of higher-end rental buildings, LaSalvia said. Inflation also likely encouraged some renters to stick with more affordable units.

That gap could close in 2024. Along with slowing construction, a tough housing market is keeping some would-be homebuyers in rentals. These forces are expected to stabilize demand for luxury properties. Meanwhile, constraints on lower-income renters’ finances could affect rent growth at more affordable properties, he said.

But even as demand for higher-end units stabilizes, there should be plenty of demand for more affordable properties, especially near universities, healthcare centers and transportation hubs, Felsot said.

“These properties have proven resilient through the economic cycle and are irreplaceable based on high replacement costs, especially in an inflationary environment,” he said.

Neighborhood highlights

The Lincoln Park submarket saw the strongest rent growth in the metro area last year, with rents rising 4.8%, according to Moody’s. Meanwhile, the City West submarket, just west of the Loop, added more than 2,000 units in 2023 while sustaining strong leasing rates and rent growth.

“Proximity and relative affordability are showing their importance,” LaSalvia said.

Some suburban markets have also seen strong rent growth as hybrid and remote workers seek larger units in less densely populated areas, Felsot said. 

Los Angeles

Los Angeles is expected to gain more than 11,000 new apartments in 2024, following a year that saw average rents dip, according to Moody’s. But the outlook for the city’s multifamily market is favorable—particularly for workforce housing, said Matthew Krasinski, Managing Director and Senior Regional Sales Manager for Commercial Term Lending at JPMorgan Chase.

“The continued lack of affordable housing options for Los Angeles residents, coupled with strong demand drivers, continue to bolster the overall strength of the LA multifamily market,” he said.

Despite the new construction, the vacancy rate is expected to increase slightly to 4.2% through 2024, according to Moody’s. Asking rent growth, forecast at 1.9% in 2024, is projected to be below the long-run average but positive, said Lu Chen, Director and Senior Economist at Moody’s Analytics CRE.

Elevated interest rates have slowed sales of multifamily buildings, and investors’ expenses—particularly insurance—have crept up in recent years, Krasinski said. But LA’s broad, resilient economy—driven by the entertainment, healthcare and tech sectors, among others—remains a major strength.

“The enduring strength of the LA economy will continue to have a positive impact on the LA housing market,” he said. 

The Los Angeles apartment market at a glance¹

• Vacancy rate: 4.2% in 2024, up slightly from 4.1% in 2023
• Asking rent growth: 1.9% in 2024, a jump from -3.1% in 2023
• Effective rent growth: 1.7% in 2024, up from -3.7% in 2023
• 28,612 newly constructed units by 2026

Trend to watch

The LA metropolitan area had the highest rent-to-income ratio in California last year, with average rents accounting for nearly one-third of median incomes, according to Moody’s.

Renters often trade down to lower-priced options when affordability is an issue. But rising home prices and elevated mortgage rates put homeownership out of reach for many. This has helped sustain demand for luxury apartments as well as lower priced units, Chen said. “Renter households are squeezed on both ends” of the income spectrum.

Neighborhood highlights

A difficult housing market helped sustain demand for high-end rentals in the city—except in two of LA’s most expensive submarkets. Both Downtown Los Angeles and the West Long Beach and Signal Hill areas saw weaker rents last year, Chen said.

Meanwhile, high rents in LA might have boosted the market in neighboring Orange County. While Orange County rents are higher than in many other parts of California, they’re below LA’s. In particular, comparatively affordable properties in Orange County performed well, Chen said. 

San Francisco

While San Francisco’s overall vacancy rate remains above its long-term average and rents haven’t quite bounced back to pre-pandemic levels, the multifamily market’s recent performance is heading in the right direction, Chen said.

“The lasting appeal of coastal and urban life remains,” she said.

Pockets of the city core are still seeing somewhat elevated vacancies and lower rents, said David Diggs, Managing Director and Senior Regional Sales Manager for Commercial Term Lending at JPMorgan Chase.

“But for the broader city and broader peninsula, things look solid and stable,” he said.

A spike in new construction, notably in the South of Market area, is contributing to San Francisco’s above-average vacancy rate, which is projected to rise from 4.2% in 2023 to 4.5% by the end of this year.

That could constrain asking rents, which are expected to rise 1.5% in 2024 after falling 2.2% last year, according to Moody’s. Rents at comparatively affordable units might be more affected than luxury apartments, which benefited from steady income growth in higher-earning households and demand from would-be homebuyers facing a challenging housing market, Chen said.

“Affordability is taking a bigger toll on the moderate- to low-income household,” she said.

Slower-than-usual rent growth could be a challenge for property owners also contending with inflation and higher costs, Diggs said. The Bay Area’s overall job market, however, has still shown growth despite some layoffs at technology companies during 2023. 

San Francisco's apartment market at a glance¹

• Vacancy rate: 4.5% in 2024, up from 4.2% in 2023
• Asking rent growth: 1.5%  in 2024, up from -2.2% in 2023
• Effective rent growth: 1.3% in 2024, rising from -1.9% in 2023
• 6,544 newly constructed units online by 2026 

Trend to watch

Multifamily property values in Downtown San Francisco started to drop a bit during 2023. It wasn’t a dramatic decline, and the number of transactions is still low, “but we haven’t seen prices move lower in a long time,” Diggs said. “For investors who have capital, it could a good time to keep an eye out for opportunities.”

Neighborhood highlights

The South of Market neighborhood, San Francisco’s largest and most expensive multifamily submarket with the most new construction of luxury units, has struggled due to a comparatively sluggish return to the area’s office buildings and its higher prices, Chen said. On the other hand, the San Mateo and West San Francisco submarkets saw strong leasing in the second half of 2023.

The South Bay also had a particularly strong rebound after the pandemic and has continued to perform well, as have parts of the East and North Bay, Diggs said. That’s in part thanks to lifestyle changes accompanying hybrid and remote work.

“If people don’t need to commute in as much, they’re OK living farther away,” he said.