Apartment Rents Hit Record High for 8th Straight Month

The U.S. apartment rent average rose for the eighth consecutive month in August, reported Yardi Matrix, Santa Barbara, Calif.

The company’s Monthly Real Estate Market Report covering 119 U.S. markets said average apartment rents reached $1,220 in August, topping July’s average by $3. On a year-over-year basis, rents rose by 5.0 percent, down 50 basis points from July, 110 basis points from April and 170 basis points from the recent peak last October.

The report noted overall rent growth cooled somewhat, particularly in technology-centric areas. San Francisco, which had 12 percent growth in rents in 2015, slowed to 1.6 percent year-over-year through August. Denver’s year-over-year growth rate fell to 3.5 percent in August after rising by 11 percent in 2015. Other markets that saw significant deceleration include Austin, Texas (up 4.8 percent year-over-year through August compared to 6.9 percent growth in 2015) and Boston (2.2 percent year-over-year, compared to 5.2 percent in 2015). Although these metros were not as frothy as San Francisco or Denver, they are both tech-led markets in which growth has declined by about four percentage points in recent months.

Other moderating factors included slight declines in job growth and occupancy, said Yardi Matrix Vice President Jeff Adler, the report’s co-author.

“Even though overall rent growth is cooling, fundamentals in most of the country remain strong. Occupancy rates have declined slightly, but they remain extremely high across the country,” Adler said “Job growth has slowed a bit, but continues at a pace of roughly two million per year, enough to keep apartment demand generally robust. The number of metros with outsize year-over-year rent gains has declined to a small number compared to the second half of 2015 and early 2016.”

The report said 18 of the top 30 metros have seen solid growth of 4 to 7 percent over the past year. Top 10 metros for year-over-year rent growth in August were Sacramento, Calif.; Seattle; California’s Inland Empire; Atlanta; Los Angeles; Portland, Ore.; Dallas; Phoenix; Nashville/Knoxville, Tenn.; and Orlando, Fla.

Yardi Matrix reported nationally, U.S. multifamily rents rose by 0.5 percent on a trailing three-month basis in August, down 10 basis points from the prior month. Working-class Renter-by-Necessity assets led gains with a 0.5 percent increase, while the high-end Lifestyle segment grew by 0.4 percent.

Sacramento, which has been among the leading metros for rent growth all year, continued its heady increases, leading on a T-3 basis at 1.4 percent. Sun Belt metros Atlanta (1.1 percent), Orlando (1.0 percent) and Tampa (0.8 percent) were among the top six, an indication that less expensive markets with healthy lifestyle amenities are attracting businesses and workers in the latter stages of the economic recovery. Metros in Southern California–San Diego (0.8 percent), the Inland Empire (0.8 percent) and Los Angeles (0.7 percent)–also saw strong growth, as demand remained high.

On the other end of the spectrum, Boston (-0.1 percent), San Francisco (0.1 percent) and Houston (0.1 percent) lagged the rankings. Seattle (0.3 percent) and Las Vegas (0.1 percent) also fell sharply from the rankings a month ago, which could presage a slowdown in the second half.

The report said rents grew by 6.0 percent in June on a trailing 12-month basis, down 10 basis points from July. Gains were led by Portland (12.5 percent), Sacramento (11.2 percent) and Seattle (10.8 percent), although Portland and Seattle started to show signs of moderating to more sustainable increases.

Yardi Matrix forecasted 4.5 percent growth for 2016, “so if anything, year-to-date increases have surprised on the upside,” Adler said. “The slowdown is less cause for concern than the natural byproduct of limits when income growth is between 2 and 3 percent. In that environment, rent growth can only return to more moderate levels.”