2023 will be a great year for multifamily.

True: Rent growth in 2023 will not be anything like rent growth in 2021 and 2022. Instead, this year will be one that’s considerably more normal — but that still means a great year for the industry.

Yardi Matrix recently put out its 2023 winter outlook, which projects rent growth in 2023 will hit 3.1% at the national level. That’s a more than 50% drop from the 6.4% reported in 2022 — but last year was anything but typical. 

Some dynamics have shifted, though, and will continue to do so. Many of the largest short-term rent decreases occurred in Sun Belt markets, which had been the darlings of the industry during and after the pandemic. This year, in large part due to oversupply, rents will continue to soften in most of these metros, particularly in Phoenix and Las Vegas.

Which markets are set to outperform in 2023? We compiled a list based on rent growth projections provided by Yardi Matrix. Our ranking is at odds with those from previous years — with most of the highest gains set to occur in large, primary markets. See the full list below.

Top Multifamily Markets in 2023

5. Charlotte

Our fifth-place entry is also the smallest multifamily on our list. This Sun Belt market is a standout — it's still growing despite an oversupply of multifamily deliveries in many other markets. The metro’s apartment inventory is slated to expand by 5.7% this year, but increasing demand amid longer-term demographic trends mean that there should be little trouble absorbing new units. 

Notable submarkets in Charlotte include the downtown area, where residents can enjoy easy access to jobs, entertainment, and amenities, as well as the University City area, which is home to the University of North Carolina at Charlotte. University City in and of itself should perform quite strongly, with college enrollment in the area up significantly, growing demand for more and more student housing.

2. Miami

It may seem surprising, but the country’s least-affordable housing market is about to get even more expensive. Tied in second place, Miami will see rents increase by an estimated 3.7% in 2023. While there’s significant amounts of development activity — the Matrix report expects more than 19,000 units to deliver this year, or a 5.5% increase in the market’s inventory — demand will remain strong.

The rising costs in Miami are the result of several factors. One is the limited amount of land for development. There simply isn’t enough space to build quickly and affordably, and so rents climb. Add in the major relocations of corporations and people in the past couple of years — a trend that continues to this day — and it’s no surprise that housing prices are through the roof. Still, rent decreases are not in the cards for South Florida in 2023.

2. Tampa

Our second Florida market, Tampa is expected to see rent growth in 2023 of 3.7%, similar to Miami — just at a much lower price point, with rents averaging around $1,800 at the end of 2022. The metro made our 2022 list of top multifamily markets as well.

The dynamics at play behind the rise of Tampa’s rents is fairly straightforward. Demand has been growing along population increases, and supply simply hasn’t caught up. While there are around 8,700 units slated to deliver this year, this only accounts for about 3.6% of stock. That’s not a small amount by any measure, but it simply isn’t the pace of new construction needed to meet demand. 

2. New York

The largest multifamily market in the U.S. — and the most expensive — will price itself even higher this year. End-of-year rents averaged $4,190, miles ahead of every other metro, and with projected growth of 3.7% in 2023, New York will remain in the pole position for the foreseeable future.

New York appears to be a solid bet not only for this year, too. Deliveries this year could hit about 13,500 units. That sounds like a lot, but it only amounts to 2.3% of inventory. Compare that to the 2.9% inventory expansion at the national level, and it’s easy to see how rents will keep pushing higher. There simply isn’t enough housing available — and that’s true of all five of the city’s boroughs.

1. San Jose

At the top of our list is San Jose. This one surprised me a little. It’s notoriously one of the most expensive markets to rent in. From the outside, you might expect it to soften a bit more than the average metro as the economy contracts. That’s especially true after a wave of tech layoffs, which have the potential to deeply impact the market’s renter fundamentals.

Not so, says Yardi Matrix: The report projects growth of 4.9% this year. Construction activity isn’t exactly muted — there are about 4,000 units, or 3% of inventory, slated to complete this year — but rental demand increased toward the end of last year, and so fundamentals are likely to remain strong throughout 2023.

Conclusion

While there’s a lot to be said about the markets in our top five, the truth is this: The multifamily sector across the country is largely in very good shape going into 2023. 

You shouldn’t underestimate the impacts of higher interest rates with softening occupancy and rent growth, but there is no serious cause for alarm at the industry level. Investors with floating-rate debt will continue to face pressure — especially if they see vacancy jump — but the average investor will come out of this year stronger, not just unscathed.