Multi-Family Insights

January 31, 2024 | 

Over the past three years, there has been a significant shift in the multi-family real estate market within the Central Valley as well as nationally. The pandemic spurred fundamental changes for the industry as demand for housing surged in the following years to the great benefit of owners and developers eager to meet that demand. As of late, inflation, much higher interest rates, and a record number of delivered units have given tenants stronger leverage in the rental market.

The rate of new construction has fluctuated drastically in the Central Valley since the start of the pandemic. In 2020, the multi-family market saw low vacancy and rents skyrocketing at never-before-seen rates, sparking large amounts of new development projects. Today, we are expecting 1,585 units to be completed in the Central Valley over the next 3 years. However, interest rate increases along with softening market fundamentals, rising vacancy rates and more stagnant rent growth, have reversed that construction trend. While current projects are still being completed, there are significantly less new developments coming into the pipeline. In 2023, only one new multi-family project broke ground throughout the Central Valley. This trend is also a nationwide phenomenon. According to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, the country's new multi-family construction starts fell by 33.7% over the past year.


The Central Valley has also seen major swings in rent growth in the recent past. Between 2020 and 2022, rent growth exceeded 12% annually in certain areas. In contrast, going into 2024, projected rent growth is expected to be much more modest. It ranges from 1.1% YoY in Modesto to 3.4% YoY in Madera. National rent growth projections are also down as Freddie Mac projects a moderate 2.5% national increase in rent for the coming year, largely due to over a million units set to come online nationwide.

The market is witnessing a rise in landlord concessions. To remain competitive against similar properties, owners are increasingly utilizing rent concessions to attract tenants. Common strategies include offering the first month free or providing a discount equivalent to one month's rent, distributed across the year. These tactics reflect the intensifying competition within the rental market.


Reflecting on these changes, owners of multi-family properties have experienced both great prosperity as well as challenges. Property owners enjoyed significant growth in NOI and returns following the pandemic with strong rent growth and low vacancy, along with robust development. Now, as the market evolves, tenants are emerging with greater influence, as evidenced by moderate rent increases and more rental choices. These developments signify a new chapter in the multi-family sector, balancing the interests of both owners and tenants and paving the way for future growth.

*Data courtesy Visintainer Group and CoStar Analytics, U.S. Department of Housing and Urban Development