Renting is often viewed as an advantageous option in today’s market, typically presenting lower costs compared to home buying and greater flexibility for relocation. Traditionally, around 50% of renters in major urban areas change residences once their leases expire. However, current trends indicate this is shifting.
Real estate analyst Alex Goldfarb from Piper Sandler emphasizes that the decline in turnover rates is notably significant. He reports that many large landlords are experiencing turnover rates as low as 30%, significantly under the usual industry average of 50%.
Several factors contribute to this trend, including the high costs associated with buying homes, limited rental availability in coastal regions, economic uncertainty, the expenses related to moving, and a growing preference for suburban living, which offers larger and more comfortable apartments.
“As a result, landlords benefit from increased rental prices during lease renewals, driven by tenants’ hesitancy to move,” Goldfarb noted. “This scenario also enhances landlords’ cash flow due to reduced turnover expenses.”
These turnover costs encompass repairs, painting, and cleaning associated with new occupants.
In response to this evolving market, Goldfarb expresses a favorable outlook toward companies such as Essex Property Trust, which has a substantial presence on the West Coast. Similarly, Equity Residential is also well-positioned due to its regional footprint.
Goldfarb highlights the recovery of cities like San Francisco and Seattle, spurred by the return to office mandates from tech giants such as Amazon, which is positively impacting the real estate landscape.
On the topic of the Sunbelt region, where rental demand soared during the pandemic, Goldfarb maintains a neutral stance. Companies such as Camden Property Trust and Mid-America Apartment Communities performed well in the first quarter of this year but could face challenges if a recession occurs, leading to job losses.
In the broader multifamily sector, rental prices have begun to rebound, with an increase of 0.9% year-over-year reported in the first quarter, as noted by CBRE. This upturn follows a period of decline last year attributed to a surge of new supply, and it is supported by the highest rate of net absorption—defined as the change in occupied units—since 2000, which was over three times the pre-pandemic average.
The latest data reveals that demand has outpaced new construction for four consecutive quarters, helping to reduce the multifamily vacancy rate to 4.8%, below its historical average of 5%.
“This marks the first decline in vacant units in over two years and signifies an important shift in the multifamily market,” stated Kelli Carhart, head of multifamily capital markets at CBRE. “This improvement is likely to drive increased investment activity in 2025, as the strengthened fundamentals foster greater investor confidence and capital deployment.”
