The rental market has seen significant changes in recent times, and understanding these shifts is crucial for investors and renters alike. While the multifamily sector is experiencing a softening in rent growth, the single-family rental market remains robust, pointing towards a divergence in trends.
National Trends
According to Zillow’s Observed Rent Index (ZORI), national single-family rents rose by +5.0% between March 2023 and March 2024. In contrast, multifamily rents rose by +2.7% during the same period. Despite the overall deceleration in rent growth since the peak of the Pandemic Housing Boom, single-family rent growth continues to outpace multifamily rent growth significantly.
Reasons for the Divergence
One of the primary reasons behind the softening of the multifamily market is the surge in apartment supply. The U.S. witnessed a significant increase in apartment completions in 2023, reaching the highest levels since 1987, with over 439,000 units completing construction. This trend is expected to continue in 2024, with projections indicating the highest level of completions since 1974.
Memphis Multifamily Trends for 2024
In Memphis, the multifamily market is experiencing a resurgence, driven by increased hiring efforts and economic growth. Total nonfarm employment is forecast to expand by 0.9% over the next 12 months, leading to the creation of approximately 6,100 new jobs. This growth is supported by major projects like the $5.6 billion BlueOval City campus in Stanton, which is expected to create an estimated 5,800 positions.
The economic expansion is set to have a positive impact on household income, with the median household income forecasted to expand by 2.8% over the next year. This, coupled with more job opportunities, is expected to accelerate household formation, with an additional 5,500 households forecasted for 2024.
Apartment Market Outlook
The increased job opportunities and higher salaries are expected to drive demand for rental properties in Memphis. Leasing activity is projected to shift positively, with approximately 2,000 net units absorbed over the next four quarters. This surge in demand is expected to outpace the units scheduled to come online, leading to a rise in apartment occupancy.
As a result, apartment occupancy is projected to average 92.6% in the fourth quarter of 2024, up by 50 basis points from the previous year. This rise in occupancy, combined with employment and demographic trends, is expected to support a 3% increase in rent, with the average rent reaching $1,251 in the fourth quarter of 2024.
Single Family Rental Market Outlook
The single-family rental market in Memphis is expected to continue seeing strong demand and rent increases through 2024 due to many of the same factors that are leading to the increase in multifamily occupancy. There are several additional points that are driving the rents and occupancy for single family home desirability.
Firstly, the economic expansion and increased job opportunities in Memphis are driving population growth and household formation. With more people moving into the area for work with established families, there is a higher demand for housing, particularly single-family rental properties. As a result, the growing population will continue to support the demand for single-family rentals.
Secondly, single-family rental properties offer several advantages over other housing options, such as multifamily apartments. These properties provide tenants with more space, privacy, and a sense of ownership without the commitment of purchasing a home. Additionally, with the current trend of remote work and the desire for more space, there is an increased demand for single-family homes, further driving up the demand for single-family rental properties.
Thirdly, the limited supply of single-family rental properties in Memphis is also contributing to the continued demand and rent increases. With fewer available properties compared to the growing demand, landlords have the ability to increase rents, leading to higher rental income and attracting more investors to the market.
Overall, the combination of economic growth, population expansion, the appeal of single-family homes, and limited supply is expected to fuel the robust single-family rental market in Memphis, leading to continued demand and rent increases through 2024.