Construction slows and absorption accelerates to start 2024 in the St. Louis multifamily market

Market fundamentals of the St. Louis 2024 multifamily market report for the first quarter.

Multifamily completions in St. Louis slowed during the first quarter, but the supply overhang that has resulted from elevated construction totals in recent years resulted in another vacancy increase. The rate rose above 5% for the first time in nearly three years, after holding mostly steady throughout much of 2022 and 2023. Although vacancy conditions softened, renter demand improved in recent months, fueled by continued gains in the local labor market. Net absorption totaled more than 250 units in the first quarter, up 18% from the same period last year. The rebound in renter demand drove asking rents higher in the last three months, following declines in the second half of last year.

Properties continued to trade in the St. Louis multifamily investment market during the first quarter, although transaction counts at the outset of this year lagged the pace that was achieved throughout 2023. Total sales during the first quarter were down about 40% compared to velocity during the same period of last year. While a few newer properties have sold in recent months, the bulk of the activity has occurred in properties built before 2000. This has resulted in a lower overall per-unit price; in transactions where pricing was available, the median price thus far in 2024 is $111,800 per unit. Cap rates averaged approximately 6.5% to start the year, but higher-quality properties generally trade at lower cap rates than the average.

Looking ahead

Property fundamentals in the St. Louis multifamily market are expected to stabilize in the coming quarters, as market metrics are forecast to return closer to the region’s long-term averages. Annual deliveries are forecast to be modest in 2024 following two consecutive years of heightened completions. With inventory growth expected to more closely track long-term growth patterns and renter demand projected to remain strong, supply-side pressures that have persisted in recent years will likely ease. The vacancy rate is forecast to end the year close to the current figure and continued renter demand should support additional rent increases. Rent growth has averaged 3.5% per year since 2010.

The investment outlook in St. Louis is expected to remain favorable in the coming quarters. While many markets are recording sharp increases in deliveries that will result in greater competitive pressures on operators, the surge in deliveries has already occurred in St. Louis, meaning the market is further ahead in the recovery cycle than most, and operational stability should support investment demand. Middle-tier and lower-tier assets should continue to account for the majority of the transaction mix, but Class A sales may pick up in the second half of 2024, closely tracking trends posted last year.

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