Memphis, TN Multifamily Market Report

Market Overview

The rental housing market in Memphis, TN, is currently experiencing a significantly higher vacancy rate compared to the national average of 6.7%. However, despite the number of unoccupied apartments, the multifamily development sector has been thriving in recent quarters and is expected to continue growing. This is partly due to targeted incentives aimed at promoting multifamily development. In fact, Q2 2023 witnessed the construction of a record-breaking 3,000 new units, marking the highest number in the past decade. Furthermore, the annual rent growth in Memphis has reached an impressive 2.3%, surpassing the city’s historical average. On the other hand, after reaching a peak in 2021, the sales volume in Memphis is now experiencing a slowdown. Nevertheless, the market’s growth prospects remain promising as out-of-state investors are drawn to Memphis assets for their high yields and comparatively lower pricing.

Highlights

• Memphis’ vacancy rate in April 2023, 13.4%, was nearly double that of the national average of 6.7%.
• Memphis’ strong industrial sector, including its central location, robust infrastructure, and the presence of FedEx, is likely to drive multifamily demand in the coming years.
• The $5.6 billion Ford facility in Memphis will create thousands of temporary construction jobs and approximately 6,000 full-time jobs once operational in 2025.
• The sales volume in Memphis stands at $499M, which is well above the historical average of $269.7M.

Rents | Vacancy | Construction

Approximately 13,000 units have been renovated in Memphis since 2010, which accounts for about 14% of the metro’s housing inventory. In contrast, only around 5,000 units have been built from the group up during the same period.

Over the past year, the multifamily vacancy rate in Memphis has significantly increased, surpassing its all-time average of 11.7%. Construction activity has been on the rise in Memphis, with approximately 2,900 units currently under construction throughout the metro area. Although this accounts for only about 2.9% of the metro’s inventory, it is above the market’s historical average. The upcoming influx of new units is likely to increase the vacancy rate in the upcoming quarters, potentially surpassing the region’s record. Looking ahead, the vigorous industrial sector in Memphis is expected to drive multifamily demand in the coming years, especially with the impact of Ford’s new electric vehicle manufacturing plant, which will significantly contribute to housing demand in the region. In terms of rents, there has been a modest increase of 2.2% within the last 12 months. This is slightly above the national average but still stands below 5.7%, which is Memphis’ own five-year annual average.

Sales

Memphis, TN, By the Numbers in the Last 12 Months

• Units Under Construction: 2,891
• Units Delivered: 1,724
• Vacancy rate % Change: 3.8%
• Average Asking Rent: $1,121
• Average Price Per Unit: $105
• Sales Volume: $499M

Over the past 12 months, out-of-state investors have played a significant role in driving the sales volume of the metro area in Memphis. The 12-month sales volume in Memphis reached an impressive $499 million, surpassing the historical average of $269.7 million. While most of the sales in Memphis involve older assets, there have been a few notable transactions of new properties that have sold well above the average. Two years ago, in the West Tennessee market, approximately $1 billion worth of multifamily assets changed hands. The following year, 2022, saw an estimated transaction volume of $825 million. However, after H1 2023, there has been a noticeable slowdown in investment both locally and nationwide, in contrast to the surge in deal volume experienced in late 2021 and early 2022.