Multifamily Rent Growth: What to Expect in 2022 and Beyond
The current economy has real estate investors worried as interest rates have increased and inflation is having an undeniable impact on consumers. According to most macroeconomic forecasters, it seems that the likelihood of recession is much higher: the interest rate hikes have already impacted investors from making deals as they hold out until the capital markets level out. Despite the uncertainty, rental returns for properties, especially multifamily properties, have historically grown over time. The multifamily rent growth is positioned very well and is forecasted to have a solid performance.
What Does Rent Growth Rate Mean?
The rent growth rate is the expected or projected trend of the market rental rates over a particular period of analysis, usually month to month. Each year, you can determine if your rental revenue increases and by how much. Then you can compare this to the average growth rate in the area, determining how your investment property performs compared to others in the same market.
In a multifamily investment, rent growth is arguably the most important component to increasing Net Operating Income (NOI). Rent growth is the main source of profit. That’s why projecting rent growth and keeping up to date on rents compared to competitors is crucial.
History of Multifamily Rent Growth
The multifamily market remains one of the largest and most resilient among all assets in the US. The strength of the rental market has grown since the end of 2020, with more markets seeing higher rent growth in the year and a half compared with the five years leading up to the pandemic. In 2021, multifamily investors saw substantial cap-rate compression, this is largely due to the pandemic causing driven interest rates declines and increased rental rates. This caused multifamily assets to increase in value. Since the beginning of 2021, every market has experienced rent growth.
In 2022, the multifamily market has remained robust. Though COVID-19 never fully went away, Americans are getting back to the norm of working conditions, which means legal consequences of not paying rent can be enforced. Like almost every industry, inflation has impacted the costs of multifamily payroll expenses, maintenance, property taxes, utilities, and other expenses. However, the overall performance grew more than the expenses, creating a net positive impact and this will likely continue.
What to Expect in 2022 and Beyond
The multifamily rent growth market is expected to continue to grow given that housing is essential. As interest rates have increased, inflation is very real for consumers, and as the economy gets back to a “normal,” post-pandemic operating environment, multifamily investors will benefit with the demand for multifamily rentals, as first-time homebuyers need to keep renting and wait for a more favorable time to buy. Investors will produce equity in the market and cash flow.
How CF Capital Can Benefit You as an Investor
Multifamily investing remains one of the most popular and best-performing assets. At CF Capital, our team is dedicated to assisting current and future multifamily property owners and investors in executing the highest level of efficiency. If you have any questions or want to learn more, contact us today!
