Apartment Rent Gains Slow

Michael Tucker mtucker@mba.org

January 17, 2018


U.S. multifamily rents held steady in December, finishing 2017 at $1,359 on average--up 2.5 percent for the year--reported Yardi Matrix, Santa Barbara, Calif.

"While that represents a solid gain, it also is the smallest annual increase since 2010," the YardiMatrix Rent Survey said, noting rents have grown by at least 3.3 percent every year since then, peaking at 5.4 percent in 2015 and declining to 3.4 percent in 2016.

Overall, rents are just $4 off their $1,363 peak, achieved in September 2017. Rents were down 0.3 percent in the fourth quarter. "Although the results are somewhat negative compared to recent history, what's notable is how consistently strong the market has performed during the entire recovery," YardiMatrix said.

The report said the question for 2018 is how much more steam is left in the market--whether the deceleration will continue, level off or turn negative. "Our view is that growth will continue at roughly the same rate nationally, led by strong demand," YardiMatrix said. "The economy shows no signs of slowing down, as GDP comes off two strong quarters and should get at least a boost from lower corporate and personal tax rates, while job growth continues to impress. Combined with the growth of the young adult population, household formation should remain robust."

The "consistent" national numbers masked movement at the metro and submarket levels, the report noted. "Secondary markets such as Sacramento [Calif.], Orlando [Fla.], Las Vegas, Salt Lake City [Utah] and Colorado Springs [Colo.] with affordable rents and growing populations should see above-trend increases," it said. "Business-friendly markets such as Dallas and Atlanta should see a slowdown in rent increases, but see moderate gains nonetheless, while expensive coastal markets such as New York City and markets with excessive supply growth are likely to see little or no gain."

YardiMatrix noted "heavy" supply growth caused occupancy at stabilized properties to drop 50 basis points over the last six months to 95.3 percent as of November. "With deliveries expected to reach a cycle peak of 360,000 in 2018, we forecast the occupancy rate to continue its downward trajectory in 2018," the report said.

While occupancy fell in both upscale "lifestyle renter" properties and Class B "renter by necessity" properties, a 60 basis point spread remains between lifestyle occupancies (94.9 percent) and renter by necessity occupancies (95.5 percent) because most new deliveries have been luxury units, the report said.

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