2021 turned out to be a pretty good year for multifamily real estate’s recovery, and the trend is continuing so far in 2022. In January, year-over-year, asking rents had increased 11.3%. However, a closer look at the numbers reveals signs of a slowdown already beginning.
Wages, jobs and inflation
The year-over-year increase in wages didn’t keep up with the increase in asking rents. In fact, the wage increase was less than half of the rent increase at 4.9%. Also, the number of jobs created still hasn’t fully replaced the number of jobs lost in the early stages of the pandemic. Finally, inflation accelerated at the end of 2021, reaching 7% in December.
Taken together, these numbers indicate an increasingly difficult economic environment for renters. As promising as the rising rent rates are, the foundation on which they’re built doesn’t seem as solid.
Sharp drop in net absorption since early 2021
That the economy is becoming more difficult for renters may already be showing up in the national Net Absorption rate. While the rate has remained positive, it fell from more than 6% in the fourth quarter of 2020 to just over 2% in the fourth quarter of 2021.
Looking at long-term trend lines, this drop is sharper in multifamily than office, industrial or retail. It also corresponds closely with the sharp rise in asking rents across the same time period.
When numbers for Q1 2022 become available, it will be interesting to see if that net absorption rate keeps dropping. If it does, a corresponding cool-off for rent increases may be necessary.