NAREE Special Report: Demand Will Digest Supply

There’s been too much focus on the supply side, Cushman & Wakefield's Sam Tenenbaum said.

Sam Tenenbaum, head of multifamily research at Cushman & Wakefield.
Sam Tenenbaum, Head of Multifamily Insights, for Cushman & Wakefield.

Despite the rush of new multifamily deliveries, demand has remained strong. That was the message offered by Sam Tenenbaum, head of multifamily insights for Cushman & Wakefield, at the National Association of Real Estate Editors conference in Austin June 18.

In Q1, 86,000 apartment units were absorbed, and that was the second best first quarter outside of Q1 2021, Tenenbaum told the journalists and publicists.

“That is 60 percent higher than we saw a year ago,” the research expert noted. “That is consumer resilience in a chart. People are willing to and able to move into and create new households that are primarily rentals today.”

Therefore, according to Tenenbaum, there is too much focus on the supply side, and not enough on the demand side, which has been “surprisingly resilient.”


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While Tenenbaum couldn’t confirm whether vacancies are peaking, he noted a number of reasons to be optimistic about apartment performance over the next few years.

Chief among those reasons—and the thing that has helped bolster demand—is the unaffordability of homeownership. Today, Tenenbaum said, renters who want to find a mortgage and interest payment equal to their rent are looking at trading significantly downward than they would’ve prior to the run-up in prices in 2021.

“So, you are less likely to trade out your highly amenitized apartment if all you can afford is something further out, it is smaller and it might not necessarily be what you really wanted to be getting, right?”

Affording a down payment is also harder. Tenenbaum showed how Millennials are currently only 6 percent of the U.S.’s net worth. In 1990, when Baby Boomers were a similar age, they were 20 percent of U.S. net worth.

The affordability situation is particularly difficult on the West Coast. In San Jose, for example, the monthly mortgage payment is up $1,100 year-over-year. “That is a lot of money,” Tenenbaum said.

Meanwhile, inventories are significantly less since fewer people are selling their homes.

So, it is a good time to be a renter because of the affordability issues and because, with vacancies rising, tenants may get some concessions.

Here are more highlights from Tenenbaum’s presentation.

More migration

As new apartment households form, migration continues to the Sun Belt, particularly to the Southwest, Tenenbaum observed. “Over the last year, 35 percent—about a third—of U.S. population growth in metros of over 1 million people was just in Dallas and Houston alone,” he said. “There are so many people moving to, being born in and choosing to live in Texas today that it is dwarfing every other market on this list.”

Cities re-emerge

While the Sun Belt gained 100,000 people over the last year, many large cities are “turning around” their outmigration now that they are fully functioning again, he said. New York City, for example, while still losing net 70,000 people, lost 150,000 the prior year. Most growth of the growth has been in the suburbs and exurbs, but it no longer seems to be coming at the expense of cities.

Construction retreats

Due to rising interest rates and other factors “weighing down” developers, Tenenbaum noted, multifamily has returned to 2012 construction starts, pointing to rent growth in 2025 and 2026. Some markets, however, will take longer to realize that growth because of the amount of construction there has been. However, he noted, there has been a strong correlation between the markets where there has been a lot of multifamily units under construction, and the amount of demand in that market. That’s why we haven’t seen rents dip into the negative.

Midwest rising

The strongest rent growth since the pandemic, and in the past year, has been in Midwest markets, and that’s mainly a function of new supply. Cleveland, for example, has outperformed Austin “Supply does matter,” Tenenbaum said. “It is having an impact on rent growth and the ability to push rents for apartment owners.”

Tradeouts improve

There’s an improvement in lease trade outs, which, Tenenbaum said, is a better indicator of what is happening in individual buildings than the aggregate overall rent number—what people are advertising their units for. That improvement, however, has been offset by “incredible” increases in owner costs, particularly rising insurance premiums.

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