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Top 10 Multifamily Markets in Late 2023
Our list of markets large and small show where you can find some of the best apartment investment opportunities, despite the property sector's challenges.
The multifamily sector is certainly facing some challenges this year. But even with development and occupancy issues, it's still a fantastic area for long-term investments.
This year, we've seen a slowdown in rent growth and property values — and investment, as well. But people always need a place to live, ensuring there's always a demand for housing.
One smart move is to invest in markets where more people are moving to. Whether the economy is good or bad, apartments are essential. Remember, no matter the economic situation, everyone needs a home.
Of course, multifamily investing is far more nuanced than just going to where people are moving. This year and next, in particular, a huge wave of apartment buildings are under construction, which could mean that — even in metros with rapid population growth — rents and property values could continue softening.
Top 10 Multifamily Markets in H2 2023
To determine the top multifamily markets for the second half of 2023, we analyzed various metrics such as year-over-year rent growth, forecasted rent growth, job growth, and upcoming apartment completions, with data provided by Yardi Matrix.
By weighing these factors, we've identified 10 markets offering the best investment potential in the second half of 2023.
Rank | Market | YoY Rent Growth (7/2023) | 2023 Rent Growth Forecast |
1 | Indianapolis | 5.50% | 3.80% |
2 | New York | 5.50% | 3.40% |
3 | Chicago | 5.20% | 3.40% |
4 | San Diego | 4.00% | 3.00% |
5 | Philadelphia | 3.70% | 2.50% |
6 | Detroit | 1.60% | 2.90% |
7 | Northern New Jersey | 5.40% | 3.20% |
8 | Baltimore | 1.40% | 1.50% |
9 | Columbus | 3.00% | 3.50% |
10 | Boston | 4.30% | 3.40% |
1. Indianapolis
Indianapolis stands at the forefront of our list with a year-over-year rent growth of 5.50% and a promising forecasted rent growth of 3.80%. Historically, Indianapolis has been a stable player in the multifamily market. Its central U.S. location has consistently made it a sought-after hub for various industries, ensuring a steady demand for housing.
Indianapolis’s economy is also rather diverse, given its size. Consider the presence of globally recognized corporations like Eli Lilly, bolstering the city's employment landscape. Then in the finance sector, Merchants Bank is planning a large, 111,000-square-foot expansion in the suburb of Carmel, which should further stimulate job creation and, along with it, demand for higher-end multifamily units.
Such ventures, combined with an affordable cost of living, have made Indianapolis an attractive market both for renters and investors. With a 3.40% year-over-year employment growth, the city's prospects continue to shine brightly.
2. New York
New York City has experienced impressive year-over-year rent growth of 5.50%, with projections at 3.40% for the end of the year. Manhattan, Queens, and Brooklyn have seen rents soar to record levels, with Manhattan's median rent for a one-bedroom apartment now at $4,295, indicating a 7% increase from the previous year. However, a decline in new lease signings suggests the market might be reaching an affordability threshold.
Contrasts are evident in the city's landscape. While neighborhoods like Chelsea and the Upper West Side continue to exhibit robust demand with few defaults, challenges persist in the luxury condo and rent-stabilized sectors. Regulatory changes, especially the 2019 Housing Stability and Tenant Protection Act, have impacted rent-stabilized properties, reducing their values and making them less attractive to potential investors.
Despite these challenges, New York's dynamic multifamily market continues to adapt. The city's unmatched cultural, economic, and educational allure ensures it remains a top destination for both residents and multifamily investors.
3. Chicago
Chicago, with its robust year-over-year rent growth of 5.20% and a forecasted growth of 3.40%, remains an influential player in the multifamily market. The city's historical prominence in real estate investment and its essential role as a Midwest hub have consistently attracted investors.
Recent data from Cushman & Wakefield paint a promising picture. The second quarter of 2023 witnessed the delivery of 16 new projects, adding 3,004 units to the market, with an additional 47 projects underway that promise nearly 10,000 new units. Furthermore, Chicago's median household income has surged, standing 11.8% above the national average at $81,500. However, while the transaction volume for multifamily sales increased, the actual number of units traded saw a decline.
Amidst these dynamics, Chicago's multifamily market, bolstered by sectors like finance, technology, and manufacturing, continues to offer promising opportunities for investors.
4. San Diego
San Diego, with its enticing year-over-year rent growth of 4.00% and a forecasted growth of 3.00%, stands out in the multifamily market. The city's renowned coastline and favorable climate have, over the years, cemented its reputation as a prime location for both living and real estate investment.
Research from Zillow indicates that single-family home values in many of San Diego's neighborhoods continue to rise. This surge in home prices further propels multifamily demand, as potential buyers find themselves priced out of homeownership. Such dynamics underscore the appeal of multifamily investments in the city.
Underpinning San Diego's real estate allure is its flourishing biotech industry and significant military presence. Both sectors provide a robust employment foundation, ensuring stability and growth for the multifamily market.
5. Philadelphia
Philadelphia demonstrates a solid year-over-year rent growth of 3.70%, with an optimistic projection of 2.50% by year's end. This growth is underpinned by the city's rich history, diverse culture, and its eminent role as an educational and medical epicenter. Such characteristics continue to attract residents, ensuring a stable and increasing housing demand.
However, recent shifts in the economic landscape pose challenges for new developments. A report from The Philadelphia Inquirer indicates that rising interest rates and mounting construction costs have prompted a pause in many ambitious real estate projects. For instance, prominent developments like Alterra Property Group's 352-unit modular apartment at 42nd and Market Streets were shelved, underlining the current challenges in the development sector.
Yet, despite these developmental headwinds, Philadelphia remains a compelling investment prospect. The city's enduring appeal, coupled with its resilient multifamily market, positions it as a promising locale for long-term real estate investment.
6. Detroit
Detroit, with its year-over-year rent growth of 1.60%, has a promising forecasted growth of 2.90% on the horizon. While historically recognized for its dominance in the automotive industry, the city is undergoing a transformative phase marked by increasing prominence in tech and healthcare sectors.
Over the past decade, Detroit has embarked on significant urban renewal initiatives. Investments in blight remediation highlight the city's commitment to rejuvenating its landscapes by addressing decaying buildings and championing affordable housing projects.
Although it might currently be cheaper to buy than rent in Detroit, the city's multifamily offerings, especially in suburban areas, present high-quality housing options at prices more affordable than many of its regional counterparts. This affordability, paired with Detroit's reinvention, positions it as a multifamily market with long-term promise.
7. Northern New Jersey
Northern New Jersey has seen notable year-over-year rent growth of 5.40%, with an anticipated increase of 3.20% by the end of the year. Situated strategically between major markets like New York and Philadelphia, Northern New Jersey consistently emerges as a prime choice for multifamily investments. From bustling urban centers to serene suburbs, the region offers a diverse range of living options, catering to different lifestyles.
Earlier in 2023, a RentCafe analysis highlighted Northern New Jersey as one of the nation's most sought-after rental markets. Cities like Jersey City and Newark have become particularly appealing to renters, not just for their relative affordability, but for the quality of life they offer, combined with proximity to New York City’s myriad attractions.
Despite the multifamily sector’s dynamic trends, Northern New Jersey's blend of location benefits, housing diversity, and robust demand makes it a strong contender for investments for the long term.
8. Baltimore
Baltimore, characterized by its historic neighborhoods and waterfront, has seen a year-over-year rent growth of 1.40%. The forecast suggests a steady rise, with an anticipated growth of 1.50% by year-end. The city's robust healthcare and education sectors significantly bolster its multifamily market, drawing interest from investors.
Interestingly, housing construction in the Baltimore region has slowed down recently. As reported by The Baltimore Sun, the area is on track to build fewer homes than at any point since the Great Recession. This trend, driven by factors such as rising interest rates, increased materials costs, and limited available development space, creates a unique advantage for investors. With fewer new housing units coming online, the existing multifamily properties in Baltimore stand to benefit from heightened demand. This scenario is likely to translate to increased rents and property values, positioning Baltimore as a promising market for multifamily investments.
9. Columbus
Columbus, Ohio's bustling capital, has experienced a year-over-year rent growth of 3.00% and anticipates a promising growth of 3.50% in the near future. As the home to Ohio State University, Columbus's educational prominence and its role as a governmental hub have consistently bolstered its multifamily market. Moreover, the city's emerging tech sector continues to add to its appeal.
On the broader state level, a significant housing initiative has been proposed by Gov. Mike DeWine to address Ohio's affordable housing challenges. This proposal aims to invest up to $400 million in affordable apartments, with a dedicated $100 million annually over four years for tax credits specifically for multifamily housing. Managed by the Ohio Housing Finance Agency (OHFA), these funds aim to complement local initiatives, such as Columbus's $200 million housing fund. With such state and local support, Columbus's multifamily market is poised for growth and opportunity.
10. Boston
Boston, celebrated for its blend of historic charm and modern vibrancy, has reported a year-over-year rent growth of 4.30% and a projected growth of 3.40%. Known for its prestigious educational institutions and robust healthcare sector, Boston remains a reliable hub for multifamily investments. Furthermore, its innovation-driven economy ensures a consistent influx of young professionals.
Based on Colliers' recent multifamily report for Boston, occupancies remain healthy with a favorable vacancy rate of 5.4%. The market showcases a strong supply pipeline with over 16,000 units underway. However, with this substantial construction, any economic downturn that affects absorption could lead to increased vacancies.
Conclusion
The multifamily sector, despite short-term challenges, remains a stronghold for long-term investments. The top cities listed above showcase not only promising metrics for the current year but also bring with them a legacy of stability and growth potential in the multifamily market.
For investors, it's essential to recognize the persistent demand for housing across different economic climates. By focusing on cities with strong fundamentals and positive population growth, the multifamily sector continues to offer rewarding investment opportunities. Remember, irrespective of market trends, the foundational truth remains: People always seek a place they can call home.