Apartment Rents Grow Despite 'Aggressive' Deliveries

Michael Tucker mtucker@mba.org

April 05, 2019

U.S. apartment rents climbed 3.2 percent on an annual basis in the first quarter despite "aggressive" new deliveries, reported RealPage, Richardson, Texas.

Annual multifamily rent growth has topped the 3 percent mark for six consecutive months after hovering around 2.7 percent throughout 2017 and most of 2018, RealPage Chief Economist Greg Willett said.

"It's encouraging for apartment investors to see rent growth holding up so well when the new supply volumes are aggressive," Willett said. "While brand new properties still moving through the lease-up process tend to be offering discounts, pricing power actually has improved a bit for luxury developments where the initial resident base is now in place. Properties at middle-tier to lower-end price points are maintaining their already-strong rent growth momentum."

Willett said apartment occupancy reached 95.2 percent in the first quarter, up from 95.1 percent a year ago.

Among the country's large metros, local rent growth leaders included Phoenix and Las Vegas, each area posting annual price jumps approaching 8 percent. Atlanta, Greensboro/Winston-Salem, N.C., Memphis, Tenn. and Sacramento all saw nearly 5 percent annual rent growth.

Some small metros are experiencing even stronger rent boosts, Willett said. Rents are up 15.2 percent in West Texas Oil Patch markets Midland and Odessa, while markets including Wilmington, N.C.; Tucson, Ariz. and Gainesville, Fla. saw price increases between 7 and 8 percent.

Freddie Mac, McLean, Va. reported Miami and San Diego are the two most rent-burdened metros in the country for apartment renters as rents continue to rise, followed by Los Angeles, New York and Orlando.

"Rental affordability is a significant challenge for metropolitan areas across the United States," said Freddie Mac Multifamily Vice President Research and Modeling Steve Guggenmos. "Supply just hasn't kept pace with demand in many metros, and that's pushing affordable rents out of reach for millions of American families."

Guggenmos noted one thing that analysts sometimes overlook: the impact of high rents on tenants who earn well below the median renter income. "Firefighters, police officers, teachers and other members of a city's vital workforce earn only modestly more than their suburban or rural counterparts," he said. "As a result, they often struggle to afford housing in the communities in which they serve."

Building in the U.S. apartment sector remains at three-decade highs, Willett said. Market-rate apartment properties under construction contain more than 400,000 units expected to deliver during the next 18 months.

"As we move into prime leasing season for 2019, there will be lots of high-end new product available in some spots," Willett said. "New luxury properties are going to be scrambling to attract affluent renters. At the same time, vacant units available to lease can be very difficult to find in properties in the middle to lower end of the pricing spectrum."

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