Yardi Matrix: Multifamily Rents Up But Growth Rate Slowing

Multifamily rents rose slightly in April, but the growth rate slid once again to a point below its long-term average, reported Yardi Matrix, Santa Barbara, Calif.

Average U.S. monthly apartment rents rose $3 during April to $1,314, Yardi Matrix reported. Rents were up 2 percent nationwide compared to April 2016, well below the 5.5 percent growth rate seen one year ago. The 2 percent year-over-year increase represented the lowest growth seen since April 2011, when rents were up only 1.5 percent.

“The deceleration is expected, given the rapid increase in supply and the inevitable return to growth that is more in line with income gains,” said Yardi Matrix Vice President and General Manager Jeff Adler. He noted that rents have significantly exceeded income growth in recent years because the number of renters increased rapidly while supply dove after the last recession. “Now rents are peaking and have become difficult to afford for the average resident in many metros, while supply is at cyclical peaks.”

The Census Bureau reported that multifamily permits rose to 401,000 units for the 12 months ending in March, up 18.3 percent from February. Multifamily starts were 9.1 percent higher than March 2016 and completions were up 15.4 percent.

CBRE, Los Angeles, said multifamily acquisition activity “cooled” to $26 billion in the first quarter, a 35-percent drop from the prior year. Looking at individual asset purchases rather than portfolio and entity-level purchases, first quarter sales fell 14.7 percent year-over-year to $21.8 billion. CBRE noted that individual asset purchases better reflect the market because they have less variability than portfolio and entity or company-level sales.

The impact of new supply varied by between property segments, Yardi Matrix said. Nationally, rents in working-class “renter-by-necessity” properties increased by a solid 3.3 percent year-over-year while rents at pricier “lifestyle renter” properties, which saw nearly 80 percent of new deliveries, rose by only 0.7 percent. Yardi Matrix noted that lifestyle renter properties are aimed at high-income Millennials and downsizing Baby Boomers while demand in many metros is driven by middle-class renters.

Yardi Matrix noted that job growth remains “robust” currently supports new housing supply absorption but said rent growth will be limited by slowly growing wages. “We expect that rent gains will be rocky over the next 12 to 24 months as the market digests the wave of new supply coming online,” the report said. “Apartment owners should moderate expectations during that time, even though we expect fundamentals to remain strong and the long-term demographic picture looks positive.”