Renting an apartment frequently enough presents advantages such as lower costs compared to homeownership and greater adaptability in relocation. Typically, around half of apartment renters in major urban areas relocate upon lease expiration. Tho, current trends indicate a shift from this norm.

Real estate analyst Alex Goldfarb at Piper Sandler describes the diminished turnover rate as “striking.” According to Goldfarb, some of the largest landlords are experiencing turnover rates as low as 30%, a significant drop from the typical 50%.

Goldfarb attributes this phenomenon to several factors, including an unaffordable housing market, limited rental availability on the coasts, economic uncertainties, tariff concerns, moving expenses, and a preference for larger, more comfortable suburban apartments.

“The outcome is landlords are getting better pricing from renewals, as people don’t want to leave,” said Goldfarb. “It also improves [their] cash flow, because of lower turnover costs.”

These turnover costs typically encompass expenses related to repairs, painting, and cleaning.

Consequently, within the multifamily REIT sector, Goldfarb favors Essex Property Trust, citing its substantial presence on the West Coast. Equity Residential also stands to gain from its regional footprint.

He highlighted the resurgence of San Francisco and Seattle, fueled by artificial intelligence and tech giants like Amazon, whose return-to-office mandates have positively impacted the real estate market.

Sunbelt Market Faces Uncertainty

Goldfarb remains neutral regarding the Sunbelt, previously a popular pandemic investment. While companies such as Camden Property trust and Mid-America Apartment Communities demonstrated strong performance in the first quarter, they could face significant challenges in the event of a recession leading to job losses.

“The consequence is landlords are getting better pricing from renewals, as people don’t want to leave.”

According to CBRE,the overall multifamily market is recovering from declines experienced last year due to record-high new supply levels. Rents have increased by 0.9% year-over-year in the first quarter, driven by the strongest positive net absorption (the change in the number of occupied units) since 2000, which is more than triple the pre-pandemic first-quarter average.

This marks the fourth consecutive quarter where demand has outpaced new construction completions, resulting in a decrease in the multifamily vacancy rate to 4.8%, below the long-term average of 5%.

“The first drop in vacant units in more than two years signals a crucial turning point in the multifamily sector,” said Kelli Carhart, leader of multifamily capital markets for CBRE.”This boost will lead to increased investment activity in 2025 as improving fundamentals continue to drive investor confidence capital deployment.”