December 3, 2024

Kansas City Renter Demand Remains Elevated, Supporting Multifamily Rent Growth

Q3 2024

Operating conditions in the Kansas City multifamily market remained healthy during the third quarter, as vacancies were steady while rents continued to advance. Renter demand has fueled improved property performance, as apartments in Kansas City recorded net absorption of nearly 1,400 units during the third quarter, slightly outpacing levels recorded in the previous quarter. These net move-ins have kept vacancies in a tight range even as new units have come online. Area vacancies have averaged in the mid-5 percent range throughout 2024, and the rate has remained between the mid-4 percent and mid-5 percent range since 2017. Apartment rents continued to advance in recent months, building upon solid gains in the previous quarter. Kansas City has been one of the top Midwest markets for rent growth, with annual increases averaging nearly 5 percent for the past five years.

Sales velocity in the Kansas City multifamily investment market has increased gradually following limited activity levels in the second half of 2023 and early 2024. Transaction volume was steady from the second quarter to the third quarter. Sales velocity during the past nine months has been most active in East and Southeast Kansas City, with sales occurring in Independence/East Kansas City and Lee’s Summit/Blue Springs/Raytown. Additionally, activity for top-tier assets picked up in recent months, with sales of Class A assets during the third quarter coming close to the combined totals of top-tier property sales from the prior 18 months. Before slowing in 2023, Class A properties traded at a fairly active pace in 2021 and 2022. Class A assets have accounted for roughly 30 percent of the transaction mix to this point in the year.

Looking ahead

The same multifamily property performance trends that have prevailed in Kansas City through the first three quarters of this year show no signs of letting up and will likely carry over into 2025. Net absorption is expected to keep pace with future completions, as vacancy is forecast to remain at 5.5 percent, which would mark four consecutive years of vacancy closing in the mid-5 percent range. Similarly to vacancy, annual supply growth is on pace to closely track levels recorded in each of the prior two years, following a cyclical peak in 2020. Inventory growth will likely begin to taper off in 2025 and into 2026. The steady additions to supply and continued renter demand are resulting in healthy rent growth, which is forecast to continue to advance at a pace that is similar to overall inflation.

Sales activity in the Kansas City multifamily investment market could gain momentum in the closing months of 2024, as the expectations gap between buyers and sellers appears to have become more closely aligned. Transaction volume in 2024 will likely outpace the activity levels recorded last year but should fall short of historical averages. Recent transaction volumes have been supported by an increase in the number of newer, Class A properties changing hands, and these assets are expected to continue to appeal to investors, particularly in a market where renter demand is elevated, and rents are pushing higher. While several recently delivered properties sold during the third quarter, only about 15 percent of properties that have completed since 2020 have changed hands to date, and additional transactions are likely.