According to a report by CBRE, the overall multifamily vacancy rate increased by 30 basis points (bps) quarter-over-quarter in Q1 2023 to 4.9%, which was less than the 70-bp increase in Q4 2022 and the 90-bp jump in Q2 2022. Negative net absorption of 1,900 units in Q1 2023 marked an improvement from the previous quarter's negative 14,000 units, and CBRE expects that absorption to turn positive in Q2. CBRE found that new construction deliveries came in at 58,600 units for Q1, bringing the four-quarter total to 332,000 units, slightly lower than the 2022 annual total of 343,300 units. CBRE anticipates that construction timelines remain elevated and should help balance the delivery of the significant pipeline of new multifamily products underway.
Furthermore, the average monthly net effective rent increased by 4.5% YoY for the first quarter, which is down from the record 15.3% annual increase seen in Q1 2022 but well above the pre-COVID five-year average of 2.7%. The Northeast/Mid-Atlantic and Midwest regions experienced the highest YoY rent growth, primarily driven by cities such as Newark, New Jersey; New York; and Hartford, Connecticut. Additionally, of the 69 markets tracked by CBRE, 35 recorded positive net absorption, and only Madison, Wisconsin, had a vacancy rate of less than 2%. The largest market with the lowest vacancy rate was New York at 2.9%.
In the first quarter of 2023, multifamily investment volume decreased significantly YoY. Investment volume dropped 63.7% to $24.7 billion, which is the lowest first-quarter volume since 2015. The rapid rise in interest rates increasing the cost of debt, coupled with less availability of debt, has increased the average multifamily cap rate by more than 1.25 percentage points since the first quarter of 2022. However, among commercial real estate, multifamily accounted for the largest share of investment volume, 30%, in Q1, down from 44% in Q2 2022