Multifamily Rent Growth Trends

Good morning,

Multifamily rent growth trends, US banks look to exit unwanted assets, top bank economist says Fed is done hiking and will cut rates in 2024. Let’s delve into today’s topics.

📈 Market Update

🏘️ Multifamily Rent Growth Trends

After demand for urban apartments plummeted early in the pandemic, rents in downtown areas fell while suburban rents rose. But as pandemic restrictions eased in 2021, urban demand and rent growth rebounded sharply, nearly catching up to the suburbs. While downtown demand remains positive, ample new suburban supply has slowed rent increases there, narrowing the urban-suburban spread again. Going forward, rents are expected to face pressure across locations until construction pulls back, with moderately-priced suburban units perhaps faring better.

Shifting Construction Landscape:
The robust multifamily construction boom of recent years is showing signs of slowing down, as capital has become more constrained and rents have moderated. With starts declining in major markets like Texas, supply growth could ease further. This impending supply slowdown, combined with solid job growth fueling demand in cities like Houston and Denver, points to rents resuming an upward trajectory by 2024. Though construction remains elevated for now, the peak seems to have passed. The next chapter for the multifamily sector may be a return to rent growth, especially in markets where building has decelerated but in-migration stays strong.

🏦 US Banks Look to Exit Unwanted Assets

Citizens Financial aims to reduce its $13.7B portfolio of non-core loans by $9.2B by 2025 through asset sales. But CFO John Woods said Citizens won't rush into "fire sales" that would force it to recognize losses amid high interest rates. The non-core book consists largely of auto and retail loans unlikely to suffer markdowns. Proceeds will pay off wholesale funding and boost core lending. Separately, Citizens is expanding via a new private bank for the ultra-wealthy. With loan growth in core areas projected to outpace non-core runoff, Citizens can prune its book while still advancing strategic initiatives.

Foreseeing Pain Ahead:
According to hedge fund manager Kyle Bass, US banks are poised to suffer hundreds of billions in losses from exposure to the changing office sector. As remote work reduces demand for office space, older and lower-quality buildings will need to be demolished, impacting bank balance sheets. With commercial real estate lending already constrained by higher interest rates, office will be the hardest hit sector, Bass predicts. Though the broader economy may slow, wage strength will remain, compounding the challenges for office property owners and their banking partners. Bass sees bank equity taking a 10% hit from impending office market difficulties.

✂️ Top Bank Economist Says Fed is Done Hiking and Will Cut Rates in 2024

According to a panel of chief economists from major US banks, the Federal Reserve is likely finished raising interest rates and will start cutting them by about 1 percentage point next year. Though economic growth is set to slow markedly amid tight financial conditions, the consensus view is that the US will avoid recession. With inflation projected to continue easing, the Fed's tightening cycle has probably ended, the economists said. Slowing growth and moderating inflation improve the chances for a soft landing. Still, risks remain given resilience in the face of significant tightening so far.

✍️ Further Reading

• Tenant Sues Yardi Over Rent-Setting Software (RD)

• Luxury Apartment Glut in South Florida Offers Some Price Relief (WSJ)

• Lionel Messi Buys Waterfront Fort Lauderdale Mansion (RD)

• Australian REIT Quietly Unloading $1B NYC Portfolio (RD)

• Multifamily Giant Waterton Launches Outbound Hotels Brand (CS)

• Expert Says Strong Industrial Wave Nowhere Near Over (GS)

• Market Pulse: Light Data Week, Big Headlines – FDIC Loan Sale and WeWork Renegotiating Leases (Trepp)

• What Rising Rates and Surging Insurance Prices Are Doing to Real Estate (BBG)

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