A steady pace of demand and supply growth in the first quarter for the Kansas City multifamily market

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Although operating conditions in the Kansas City multifamily market posted a mixed performance during the first quarter, the overall market remained stable. Vacancy is being supported by a strong, consistent renter demand that has kept pace with supply growth during the past three years. Since the beginning of 2021, local vacancy has remained between 5% and 6%, with the current vacancy rate being 5.4%. While the pace of multifamily deliveries continued to slow at the start of 2024, annual forecasts call for a third straight year of annual completions of around 4,500 units. Rent growth has tapered off in recent quarters, however, apartment operators are still recording quarterly gains more often than not. Year over year, asking rents rose 1.2%.

Transaction volume in the Kansas City multifamily investment market remained light in the early months of 2024, as limited sales activity in the second half of 2023 carried over into this year. Class B assets continued to make up the greatest number of sales, while simultaneously being the primary source for the recent pricing dip. Two-thirds of the assets sold to this point in 2024 were for middle-tier properties, up from about half of all sales last year. The median price to this point in 2024 is $101,700 per unit, down 21% from 2023. The median price of Class B assets thus far in 2024 is identical to the market’s overall median price; last year many middle-tier assets sold for more than $150,000 per unit. Cap rates continued to rise, ranging from 5% to 5.75%.

Looking ahead 

Property fundamentals in the Kansas City multifamily market are forecast to remain stable through the end of the year. Fueled by continued growth in the local labor market, renter demand will likely remain active, while supply growth is expected to closely track levels recorded in the previous two years. With both supply and demand set to mirror metrics posted in the past few periods, vacancy is forecast to remain in its current range. Rent growth should rebound in the coming quarters after asking rents inched lower at the start of 2024. Area rents are forecast to advance by more than 2% this year, similar to longer-term averages in the region.

Kansas City’s strong, stable property fundamentals should ultimately move investors off of the sidelines. Sales velocity will likely accelerate as the year progresses, with transaction volumes for the full year being forecast to outpace totals recorded in 2023. Class B properties typically account for the greatest share of sales, but in 2024, there may be a rebound in sales velocity for top-tier assets. Class A properties sold frequently in 2021 and 2022 before only a handful of these assets traded in 2023. Cap rates may continue to be pressured higher, trending towards the 5.5% to 6% range if interest rates remain stubbornly elevated through the end of the year.

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