Yardi Matrix: Multifamily Rents Moderate but Remain Strong

Continuing a trend of steady deceleration, average monthly apartment rents fell by $3 in October to $1,216, reported Yardi Matrix, Santa Barbara, Calif.

“Although relatively slight, the decline in rents was the biggest drop in three years,” Yardi Matrix’s Rent Survey said, noting that the average also fell by $3 in October 2013. 

Rents grew 4.4 percent nationwide in October on a year-over-year basis, a 30-basis-point decline from September’s growth rate and a 230-basis-point fall from the recent 6.7 percent high one year ago, Yardi Matrix said. “The decline demonstrates a reversion to more ‘normal’ rent growth that we forecast at the beginning of the year,” the report said. “Given the seasonal nature of apartment rents, the consistency of growth in recent years represents more of a historical outlier than the current moderation.”

Yardi Matrix noted that a number of factors led to the deceleration, but said two stand out. “One is that the outsize growth of 9-plus percent seen in so many metros through late 2015 and early 2016 has moderated.” It noted that Sacramento, Calif., which topped the survey with a 12-plus percent year-over-year growth, is the only metro above 7.4 percent. “The other key factor is that the spate of supply of high-end ‘lifestyle’ apartments has effectively put a lid on rent growth in some metros, in some cases in tandem with a slowing rate of job growth.” 

Rent growth remains higher for lower-cost ‘renter-by-necessity’ apartment units than for upscale ‘lifestyle’ units, Yardi Matrix said.

“The deceleration is far from being a sign that the sector is overheated,” the report said. “Fundamentals in most markets continue to be strong. Occupancies of stabilized properties are not far from cyclical highs, while the growing population coupled with strong job numbers is producing above-trend household formation that leads to demand for apartments.” It noted that 26 of the top 30 metros exceeded the 2.3 percent long-term rent growth average, “and we expect that to continue in most markets.” 

Yardi Matrix’s survey examined 123 markets. Metros that experienced swiftly dropping rent growth–including San Francisco, Houston and Denver–generally had problems with supply, affordability and/or job growth, the report said.