Multifamily Rents, Renewals Both Increase

Apartment lease renewal rates reached a 10-year high in February, even as average rents set a record, sector analysts said.

The average national rental rate rose $6 in March to 1,181, reported Yardi Matrix, Englewood, Colo. Apartment rents rose 1.5 percent in the first quarter.

But more renters with expiring leases chose to sign another lease rather than move, said Jay Parsons, Vice President with MPF Research, Carrollton, Texas. Renters renewed 55.1 percent of the time, up 10 basis points from a year ago and the 33rd year-over-year increase in the past 34 months.

“Renters are increasingly choosing to renew their leases and are paying a premium to do so,” said MPF Research Vice President Jay Parsons.

Parsons noted that leases renewed in February averaged a 5 percent increase in monthly rent, meaning renewed leases included 5 percent or greater rent increases in seven of the past eight months.

More than 50 percent of renters with expiring leases have renewed in each of the past 26 months, Parsons said. By comparison, renewal rates typically hovered in the mid- to upper-40s prior to 2010. 

Despite the first quarter’s good performance, apartment rent growth continues to moderate, Yardi Matrix reported. National rents increased by 5.7 percent on a year-over-year basis in March, down 20 basis points from February and 70 basis points from January.

Nationally, rents grew by 6.3 percent on a trailing 12-month basis, which averages the last 12 months compared to the prior-year period, Yardi Matrix said. The lower-level renter-by-necessity segment’s 6.5 percent rent increases outperformed 6 percent growth in higher-end apartments. 

Yardi Matrix revised its rent growth forecast. Overall, it expects 4.4 percent national rent growth in 2016, down from 2015’s 6.3 percent. The research firm’s distribution by metro also changed; it downgraded growth forecasts in 13 of the top 30 metros and increased them in 11 other markets.

“There are a number of reasons for the revisions,” Yardi Matrix said. “On the down side, we anticipate that some markets will begin to soften as heavy new supply kicks in, interest rates creep up, single-family rentals begin to absorb some of the demand for multifamily and lack of affordable supply puts a lid on how much renters can pay. On the positive side, we raised our forecast for job growth and apartment demand in some metros.”