This article originally appeared on CoStar Insight. It has been republished here with permission.
Detroit multifamily properties rated three-star and higher have remained in positive territory this year, while one- and two-star properties experienced their first quarter of positive demand since the tail-end of 2021.
Net absorption, or the change in the number of occupied units, across all multifamily subtypes was 1,200 units over the past 12 months. Built properties over this period of weakened demand have helped push vacancy to the highest it’s been in the past decade. Vacancy of 7.6% in the Detroit area has elevated by 60 basis points over the previous 12 months.
Detroit experienced a stretch during the second half of last year in which renter demand was negative across all apartment subtypes except four- and five-star properties, which managed to absorb 235 units over this period.
Four- and five-star apartments this year are still leading tenant demand. Net absorption has equated to roughly 1,300 units rented by tenants at these high-end properties. Demand for these units has been surprisingly resilient as inflation remained at elevated levels. Renter demand at three-star properties was positive this year with annual net absorption of 590 units, while one- and two-star properties experienced a net loss of 690 units vacated.
While higher-rated four- and five-star properties account for only 9.6% of Detroit’s inventory of apartment units, this subtype accounted for approximately 63% of all apartment completions. The disproportionate number of newly constructed four- and five-star units is likely due to developers meeting tenant demand for properties with increased space and amenities.
The average asking rent of $1,860 per month for four- and five-star units is well above Detroit’s overall average asking rent of $1,230 per month. The Legacy at Rochester Hills is an example of a recently completed four-star apartment complex. The average asking rent at this property is around $2,213 per month. This 359-unit garden apartment was completed in March and is in the process of leasing.
Meanwhile, properties rated at three stars and below, accounting for roughly 90% of the area’s inventory, have suffered from the effects of prolonged inflationary pressures over the past year. Economic challenges have reduced household formation, resulting in lower demand. However, if there is a further weakening of the overall economy, these more affordable alternatives may start to attract tenants who normally would consider a four- or five-star dwelling.
Top locations for tenant demand this year in the Detroit area include Northwest Oakland County, Southwest Wayne County, and Troy/Rochester. NW Oakland County experienced positive demand of 466 units over the past year. Average rents here are around $1,220 per month, with four- and five-star properties commanding $2,030 per month. Southwest Wayne County absorbed 439 units while Troy/Rochester absorbed 400 units over the past year.
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