Apartment Rent Growth Pauses

Multifamily rents took a break from their long upward march in October and stayed level at $1,166, consistent with patterns of the past two years, reported Yardi Matrix, Englewood, Colo.

Yardi Matrix Director of Research and Publications Jack Kern said the survey was the first in 2015 in which rents did not rise month-over-month. 

Yardi Matrix’s Rent Survey reported that October’s 6.7 percent year-over-year increase fell 10 basis points shy of September’s post-recession high water mark. “Even so, the growth rate remains well above the 2.8 percent average of the last eight years,” Kern said.

Rankings for year-over-year rent growth among the top 30 markets also stayed fairly steady–Portland, Ore., San Francisco and Seattle remain at the top with double-digit rent increases while Washington, D.C., Baltimore, Minneapolis-St. Paul and Richmond, Va. remain near the bottom with sub-4 percent rent growth. But Yardi Matrix identified signs of moderating growth in some formerly high-flying metros such as Boston, while other markets such as Atlanta, Orlando, Phoenix and Dallas displayed later-stage strength. “This isn’t to say that we expect wholesale changes in the rent trends, or that overall growth is weakening substantially, but we could be seeing the beginning of a natural rotation in growth,” the report said.

Kern said to watch for another trend: higher-end lifestyle properties have cooled relative to working-class rent-by-necessity properties. he noted that in recent months, high-end apartment rent growth started to level off and rent-by-necessity properties started to outperform. “The cooling off of lifestyle growth is not surprising,” he said. “Supply of high-end properties is rising rapidly in many markets, while affordability issues produce more demand on the lower end of the quality spectrum.”

Meanwhile, the national apartment stock continues to grow. The Census Bureau reported that multifamily accounted for much of the higher than expected increase in total housing starts in September (the most recent data available), a direct result of the surge in multifamily permits issued in the second quarter.

The Census Bureau reported that multifamily starts rose 28.6 percent in September from a year before to a seasonally adjusted annual rate of 454,000. Multifamily permits were issued at an annual rate of 369,000 units in September, a 1.3 percent decrease from September 2014’s annual rate and a 14.6 percent decrease from August 2015.

Jay Denton, senior vice president with apartment research firm Axiometrics, Dallas, noted multifamily permit and start figures tend to be more volatile than the single-family sector, as shown by the annual rate of 611,000 multifamily permits issued in June followed by an annual rate of 422,000 units in July.

Denton said the top metros for apartment permitting over the last 12 months include New York (57,659), Houston (21,655), Dallas (19,775) and Los Angeles (17,709).