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2023 Mid-Year Review and Second Half Outlook

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2023 Mid-Year Review and Second Half Outlook

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Chris Nebenzahl

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The first half of 2023 is behind us and before we shift our focus to the third and fourth quarters of this year, we look back on multifamily performance from January through June. We will discuss the key metrics tracked by Radix, with all data coming directly from our clients and their operating platforms. The data included in this report is as of the last week of June.

For the first time in roughly four years, the multifamily industry resembles a level of historical normalcy. The foremost indication of that return is the emergence of markets that are doing well; experiencing rent growth and steady demand in the face of supply challenges, and markets that are struggling; with falling rents, declining occupancy and an overall weak demand compounding the effects of new supply.

2021 was categorized by rapid growth in almost every market as demand spiked and apartment operators could increase rents on both new leases and renewals. The latter half of 2022 was categorized by an overall deceleration as demand dried up en masse and property fundamentals quickly retreated in almost every market. This year, however, certain markets have returned to prominence while others continue to experience fundamental erosion with limited to no help in sight.

As is typical in the early years of an economic recovery, the Gateway markets have outperformed most of their peers so far in 2023. There is a slight wrinkle this year, as western Gateway markets San Francisco and Los Angeles have not performed as well as their Midwest and eastern peer markets of Chicago, Boston, New York and Washington D.C. The Gateway markets experienced some of the worst performance in the aftermath of COVID-19 as the dense urban cores in these markets went through a generational shift in demand and utilization. As people have slowly returned to the downtown areas for both work and housing, urban core submarkets in Chicago, Boston and New York have done well.

There are some secondary markets flourishing as well. Small southwestern markets have seen strong demand as both traffic and leasing activity have increased swiftly year-to-date. Markets like Tucson, Albuquerque, and Colorado Springs do not have the supply pressure that larger sunbelt markets are dealing with, and thus an increase in demand can have a quick positive impact on property performance. Denver and San Diego have also had strong starts to the year, as continued job growth, steady migration and a manageable new supply pipeline have helped bolster these western metros.

And yet, there are many markets struggling mightily in the face of weakening demand and a generationally high level of new supply coming on to the market. Salt Lake City, Las Vegas, Phoenix, San Antonio and Atlanta have seen their rents and occupancy rates continue to fall throughout 2023. Annual performance and year-to-date performance remain negative in a number of markets, as these areas search for a bottom in key operating metrics. As new properties are delivered each week, concessions and rent cuts are increasing. It will be a tough year in several markets, with limited opportunity for growth until late 2024 or 2025.

Key Rent and Operating Trends from the First Half of 2023

Growth in Leading Indicators Dominated by Southwest and Gateway Markets

Traffic and leasing nationwide has had a modest start to 2023. The leading indicators increased in a number of markets, yet the traditional growth in April, May and June has yet to materialize at the national level. Texas markets like Dallas and Austin continue to experience the highest number of tours and leases signed per property each week, however the fastest growing markets for each of these metrics are in the southwest and east coast. Albuquerque, Salt Lake City and Colorado Springs have each seen their average traffic per property double on a year-to-date basis, topping our rankings for traffic growth. Traffic in Denver, another popular southwestern market, has grown by 69% YTD. Boston, New York and Chicago have also performed well, as traffic has increased by at least 65% since January in each market.

Similar trends are present in terms of new leases signed. Colorado Springs and Salt Lake City have more than doubled the number of leases signed per property each week since the beginning of this year. As leading indicators, the traffic and leasing data could be a positive sign for Salt Lake City. As we will discuss further, the Utah capital has had some of the weakest rent growth this year, due in large part to significant supply being delivered in the market. Chicago and Boston leasing activity is growing as well. New leases signed are up 98% and 86% respectively in the two Gateway metros.

The first half of the year is typically the best performing time for traffic and leasing as the spring rental season begins with renters touring properties and signing leases. West Coast markets struggled this year generating apartment demand. In Riverside, California, weekly tours have fallen 6% from the beginning of the year, a significant drop, given that traffic should increase materially in the first six months of a calendar year. San Jose (2% YTD growth), Las Vegas (23% YTD growth) and San Francisco (27% YTD growth) have recorded the smallest traffic increases in the nation this year.

National year to date weekly traffic and leases signed
Source: Radix

Occupancy Declining in Most Markets, but Growth Emerging in Mid-Western and West Coast Markets

Nationwide occupancy peaked in September 2021 and has been on a steady decline for nearly two years. It appears that occupancy has reached a bottom and for the last six months, national occupancy has seen very little movement in the 94.2-94.3% range. However, at the market level, occupancy continues to fluctuate. Chicago and Minneapolis are the two best markets in the country for occupancy on a year-to-date basis. Occupancy in the Windy City is up 1.2% since January, while its midwestern peer market Minneapolis has experienced 1.1% occupancy growth this year. San Diego, San Jose and Seattle have also had a strong uptick in occupancy, with the average property gaining between 70 and 80 basis points.

Top Markets for Year to Date Occupancy Growth
Source: Radix

On the opposite end of the spectrum, a handful of markets are losing occupancy quickly. Despite the traffic and leasing activity, Salt Lake City has lost 1.3% occupancy this year, and 2.8% compared to this time last year. San Antonio has also seen occupancy decline 1% since January and 2% since last July. Atlanta, Miami, Los Angeles, and Orlando face new supply headwinds and softening demand fundamentals, which has led to major occupancy declines.

New supply will be the main factor driving occupancy in the coming years. Nationwide there are more than 1 million units under construction, with roughly 400,000 new units coming on this year. While high construction and financing costs may push developers to cancel some of the projects in the planning phases, there is still a ton of new stock already under construction that will deliver in the next two years, putting further pressure on lease-ups and occupancy nationwide.

Same-store NER Still Growing in Many Markets

In typical years, most rent growth at a property and in a market occurs in the first half of the year, usually between March and June. This year is no different, and about 80% of the markets tracked by Radix Research posted rent growth in the first half of 2023. On the heels of rapid traffic and leasing growth, Albuquerque rents have increased 7.8%. Chicago and San Diego, have also had a strong first half of 2023, as rents are up 5% or more. Most markets are in the 1-3% growth range, reflecting a slightly slower than normal rental season.

Top 10 Markets for Year-to-Date NER Growth

Albuquerque, NM
Chicago, IL
San Diego, CA
Denver, CO
Charleston, SC
Baltimore, MD
Riverside, CA
San Jose, CA
Washington, DC
Minneapolis, MN


The markets that are struggling to increase rents are the same markets that have had other fundamental deterioration thus far this year. Salt Lake City, Las Vegas, San Antonio, Phoenix and Atlanta have all posted negative same-store NER growth on a year-to-date basis. As we move further into the third quarter and eventually the fourth quarter, rents will likely fall further in these markets. Softening demand and additional supply will keep rent growth depressed for the foreseeable future.

Not only are rents declining, but concessions are also rising. All five markets with negative YTD rent growth are in the top 10 markets for concession increases this year. Concessions have doubled since January in Las Vegas and are up roughly 60% in Salt Lake City.

RevPAU Showing the Widest Variance Between Top and Bottom Performers

Perhaps the best indicator of overall property performance is revenue per available unit (RevPAU), which considers both net effective rent and occupancy. 19 of the markets tracked by Radix Research have experienced year-to-date RevPAU growth, while 14 markets have declined. The biggest winners were once again Albuquerque, Chicago, Denver, San Diego and San Jose. These markets have all held their ground reasonably well on the occupancy side and have generated strong and steady rent growth throughout the first six months of the year. The weakest markets are the same markets whose rents have declined the fastest, most notably Salt Lake City, Las Vegas and San Antonio.

Top and Bottom Markets for Year to Date RevPAU
Source: Radix

RevPAU provides some interesting context especially in markets that have struggled of late. San Francisco has made headlines with weak apartment performance over the past few years, but the market has emerged in our top 10 RevPAU rankings. Once the most expensive market in the country, San Francisco has recently been in the middle of the pack in both NER growth and occupancy performance. When combining the two metrics, the relative strength propels the market upward this year. On a three year compound annual growth rate basis, San Francisco is far behind its peer markets, however the recent stability may bode well for the west coast Gateway market as we move toward 2024.

At the halfway point of 2023, the multifamily market is steady. Rapid growth and rapid deceleration have eased, leaving slow but consistent performance in many markets. There are a few outperformers, especially small cities in the southwest and northern Gateway markets. There are also some weak markets, mostly larger cities in the southwest. However, as we return to normalcy across various aspects of society and the economy, our industry appears to be following suit. We are still a few months from the beginning of the next wave of transactions as we have detailed in the past, but from an operating perspective, I expect relative calm for the coming months and a return to normal leasing patterns as the year concludes.

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