Apartment Rents, Rent Growth Reach New High
Apartment rent growth continues to accelerate–sometimes to a surprising degree–sector analysts report.
Annual effective rent growth for new residents reached 5.9 percent in the third quarter, stronger than any time since the Tech Boom expansion of 1999-2000. “It’s pretty incredible to continue to see such strong rent growth,” said Jay Parsons, director of analytics and forecasts with MPF Research, Dallas. “What’s especially interesting about it is that nearly every investor and prognosticator predicted rent growth would slow in 2015. Instead the opposite has occurred.”
Yardi Matrix, Englewood, Colo., said U.S. multifamily rents rose by $5 in September to a new record high of $1,167 in the 108 markets it covers. September’s 6.8 percent year-over-year apartment rent growth represented the highest seen in the post-recession cycle. Rent growth averaged 2.8 percent over the last eight years.
“Buoyant multifamily rent growth is hardly a surprise, but what is improbable about this year is the consistency of the increases,” the Yardi Matrix report said. “Rents have risen every month in 2015.”
MPF Research Chief Economist Greg Willett said sizable rent growth for both new resident leases and renewal leases speaks to the apartment sector’s overall health. “Job growth is strong enough to spur meaningful new household formation, and the net demand level for apartments is also helped by the limited number of households leaving the rental market to make first-time home purchases,” he said.
While apartment rents rise at a significant pace all across the country, surging rents in the western region skew the results somewhat, Willett said. Annual new resident rent growth reached 8.4 percent in the West compared to 4.7 percent in the South, 4.5 percent in the Northeast and 3.6 percent in the Midwest.
“The more aggressive rent growth rates seen in the West really jump out at you when looking at the list of leaders for metro-level pricing increases,” Willett said. Among the nation’s biggest markets, 14 areas now register annual rent growth of 7 percent or more, and 10 of those 15 are in the western region. Market reports show annual rent growth for new resident leases tops 10 percent in four western region metros–Portland, Oakland, San Francisco and Denver-Boulder.
MPF Research forecast that U.S. apartments will remain essentially full through 2016. “While overall occupancy should inch down very slightly, that slight shift really just reflects the volume of product moving through initial lease-up, rather than any real softening in the performances of most individual existing communities,” Willett said.
