May Apartment Rents Up, Growth Rate Down

U.S. multifamily rents increased slightly to $1,381 in May, but growth was weaker than one year ago, said Yardi Matrix, Santa Barbara, Calif.

The year-over-year increase fell to 2.0 percent, down from 2.5 percent in April. The 50-basis-point drop represented the largest one-month decline in more than six years, the Multifamily Monthly report said.

Apartment rents continue to grow “moderately” in most metros and have increased $15 year-to-date, the report said. But that is significantly weaker than last year’s $25 increase for the same period–hence the decline in the growth rate. “Increases are being held back by the spate of projects coming online,” Yardi Matrix said.

More than 600,000 apartment units are currently under construction and likely to be completed within two years, so new deliveries will continue to pressure rents, the report predicted.

Unsurprisingly, the impact of the new supply will be concentrated in submarkets with the most deliveries, Yardi Matrix said. “Occupancy patterns are inconsistent within metros, and areas with the most construction have been hit the hardest.”

Luxury apartments, which constitute almost 90 percent of new construction, will also feel the heat, the report said. Rents in high-end properties are negative year-over-year in high-delivery metros Seattle, Portland, Ore., Nashville, Tenn., Austin, Texas and Washington, D.C.

“To point out these facts is not to be bearish,” the report said. “The economy is favorable, with steady job growth, near full employment and consumer spending seemingly poised for a boost from the tax cuts. We expect overall demand will hold up. But it is important to adjust expectations in the near term. Growth will come from the right locations and efficient management.”

Through multifamily rents continue to rise, up 1.1 percent year-to-date through May, growth is weaker than at any time in the current cycle, the report said.

“What are we to make of the conflicting signals? At the moment, not too much,” Yardi Matrix said. “May’s performance continued a two-year pattern of rent deceleration primarily attributable to pressure from deliveries in most metros. That has taken a toll on occupancy rates and growth, even in markets with strong demand.”