Multifamily vacancy rates, currently hovering near pre-COVID levels, are poised to increase. A moderate recession—which we believe will begin later this year—will temper household formation and lead to higher vacancy in every major market. Notice that ALL the arrows are pointing up in Figure 1.

San Francisco, which has suffered from tech sector job losses and population losses, will see vacancy levels move even further away from historical norms. Vacancy will rise but remain close to the historical trend in New York as well as supply-constrained markets like Los Angeles and Orange County. 

In the Sun Belt, household formation will remain impressive but won’t be strong enough to offset robust supply growth in markets like Austin (up 16%) and Dallas (up 8%). This will likely lead to disappointing occupancy and rental growth over the next year.