Multifamily Rent Growth Slowing

Year-over-year U.S. multifamily rent growth is slowing, but the sector shows strong occupancy despite new deliveries, analysts said.

Yardi Matrix, Santa Barbara, Calif., reported apartment rents increased by $5 in May to a $1,442 nationwide average. Because rents increased less than in the same month a year ago, year-over-year growth fell 50 basis points from April to 2.5 percent.

“Although rent gains are in line with the long-term average, 2019 is shaping up to be weaker than the last few, much more robust, years,” the Yardi Matrix Multifamily National Rent Report said, noting year-over-year rent growth has dropped 80 basis points over two months and 110 basis points over three months.

RealPage, Richardson, Texas, reported the sector is maintaining strong occupancy despite “elevated” completions. “While the pervasive story in the nation’s apartment market right now is elevated supply, it’s important to point out how well occupancy has held up during this active construction period, especially since the building spree doesn’t seem to be over yet,” RealPage Analyst Kim O’Brien said. She noted first quarter apartment occupancy equaled 95.2 percent, well above the long-term historical average. 

“In fact, the market has displayed consistent resilience to new supply recently,” O’Brien said, noting occupancy has remained above 95 percent for five successive years while developers completed just under 75,000 new apartments each quarter for each of those five years. “The only time occupancy has run higher in the past two decades was at the height of the tech boom in 2000,” she said. “That year, occupancy averaged 96.1 percent.”

Rent for the average U.S. apartment grew $14 over the last three months, far short of the levels seen in recent years, Yardi Matrix said. Year-to-date through May, rents were up just 1.2 percent, notable because most apartment rent growth tends to occur in the first half of the year. “If the past is any guide, 2019 would be hard-pressed to continue the bullish outcomes of the last six years if things do not improve quickly,” the report said.