Multifamily Rent Growth Softens As Deliveries Peak

Apartment rent growth across the country softened through first-half 2017 as quarterly deliveries get set to peak this quarter, JLL and Real Capital Analytics said.

After six years with annualized effective rent growth above 3 percent, rent growth dipped below that mark in the first two quarters, the JLL Multifamily Investment Outlook said. Transaction volume also fell behind last year’s pace with year-to-date volumes down more than 2o percent from last year. 

“The current softening in rents is also driven by continued new deliveries, which is expected to peak in the third quarter,” JLL said, noting that nearly 364,000 units delivered nationally across the top 40 markets over the past 12 months, representing 1.4 percent of overall inventory. Dallas, New York and Houston saw the greatest increases in units, while Nashville, Tenn., Austin, Texas and Charlotte, N.C. are experiencing the highest percentage gains at 4-plus percent. 

National absorption remained “resolute” in the first half at 1.1 percent–even with strong deliveries–JLL said, reflecting sustained strength on the demand side. “With this, however, we will continue to see a tapering from elevated rent growth levels. Those markets with the deepest demand to absorb new deliveries will be best positioned to see fundamentals rebound from any near-term softening.”

After two years of record-setting volumes and nearly $600 billion in transactions over the last five years, the pace of investment activity has slowed, RCA reported. Multifamily investment sales saw $30.5 billion of activity in the second quarter and less than $25 billion in the first. Year-to-date volumes are thus 22.3 percent behind 2016’s record-setting activity.

RCA noted that a nearly 60 percent decline in high-rise property transactions drove the volume declines.

But overall multifamily prices continue to appreciate despite investment activity declines. Real Capital Analytics’ apartment property price index increased 8.6 percent year-over-year as of May. “Non-major markets are currently driving appreciation, as the six major gateway markets (New York, San Francisco, Washington, D.C., Los Angeles, Chicago and Boston) have only appreciated 7.1 percent in the past year,” RCA said. “However, the decline of overall activity through the first six months of the year has placed pressure on pricing on select assets.”