Rent Cuts Disappearing in Many Markets As Apartment Demand Rebounds

When COVID-19 hit in mid-March, apartment operators quickly cut rents as demand evaporated. Today leasing volumes are “surging” and rent cuts are quickly disappearing in many big U.S. metros, reported RealPage, Richardson, Texas.

RealPage Deputy Economist Jay Parsons said rents for new leases inched up 0.08 percent in the week ending June 20 compared to last year. “While this growth is miniscule, it’s a sharp departure from three months of steady rent declines,” he said. Executed rents fell by as much as 6.4 percent nationally in mid-April.

In the week ending June 20, total new lease volumes rose by a “remarkable” 18.6 percent compared to last year, Parsons said.

Parsons said executed rentsare a real-time indicator of market movement, different from asking rents or effective rents, which serve as lagging indicators. “Executed rents not only include concessions, which are often unadvertised and offered during lease negotiations, but also factor in lease term lengths, since rents can vary based on term,” he said.

Parsons noted one significant exception: most of the nation’s largest gateway markets. “Continuing a pattern seen since COVID-19 first hit, large coastal markets are generally the exceptions to the rule,” he said, noting executed rents dropped by double digits in the week ending June 20 in Boston, New York, Los Angeles, San Jose and Oakland. Rents were also down sharply in Minneapolis/St. Paul and San Francisco. “In general, these markets are also not benefiting from the rebound in new lease demand,” he said.

Sun Belt and Midwest markets are driving the pricing and leasing volume rebound. Parsons said 30 of the 50 largest markets showed positive growth in executed new lease rents in June. The largest gainers included Virginia Beach, Memphis, St. Louis, Mo., Greensboro, N.C., Jacksonville, Fla., Columbus, Ohio, Tampa, Cleveland and Kansas City, Mo.

“Nashville was also a strong performer in spite of concerns about its exposure to the travel and leisure industries,” Parsons said. “Three West Coast metros–Riverside, Calif., Sacramento and Portland–broke the mold and outperformed their peers.”

Most hot-growth Sun Belt markets recorded flat to modest gains in new lease pricing, RealPage reported. That included Dallas, Fort Worth, Charlotte, Phoenix, Houston, Denver and Las Vegas.

But a COVID-19 spike in those metros could provide a big test over the next few weeks, Parsons said. “It’s too early to conclude that new lease pricing has effectively recovered, particularly given continued uncertainty about the state of the economy and the looming expiration of expanded unemployment benefits coming at the end of July,” he said.