The multifamily market had a healthy first half of the year, setting an all-time high, and easing fears that new apartments coming on line would slow growth, according to new report.
Average rents rose $12 in June to an all-time high of $1,405, according to a survey of 127 markets by Yardi® Matrix.
“The healthy showing might put to rest fears that rent deceleration from the peak 2015/2016 years will turn into a flattening or negative growth,” the report says, which is “a good sign that demand generally is holding up and that robust supply growth is not an impediment to rent growth in most markets.”
Rents grew by 2.1% in the second quarter of 2018, the highest for any quarter since 2015; by 2.6% during the year’s first half; and by 2.9% year-over-year as of June. The first-half figure was last topped in 2016.
“Strong apartment rent growth in the spring is normal and isn’t indicative of the future. But the picture that emerges from the first-half numbers is reassuring. Late-stage metros boosted by a wave of population growth, low housing costs and healthy employment gains continue to see outsize rent gains,” the report says.
Multifamily market trends
Employment, supply and occupancy trends forecast rent growth
- Strong second-quarter performance demonstrates the basic health of the multifamily market, despite headwinds that have led rents to decelerate in most markets over the last two years.
- A number of metros with economies led by the technology industry bounced back with strong gains in the first half after rent growth stalled in the second half of 2017.
- It’s not entirely clear why these metros experienced the same volatility in concert. Possibly it’s because these markets have strong economies that produce demand for apartments that has not abated, despite issues such as high costs and growing competition from new supply.
Seattle, Portland, Denver Bounce Back In Six Months
Last December, the most prominent technology rich metros—including Seattle, Portland, San Jose, Denver, Boston and San Francisco—were congregated at the bottom of the rent growth tables.
Rents declined by at least 0.3%—with Seattle down by 0.8%—on a trailing three-month (T-3) basis in each metro. Rent deceleration at the time was not necessarily unusual. The winter months are seasonally slow and the nation as a whole fell 0.1% on a T-3 basis as of December 2017.
Individually, each of those metros was coming off a period of above-trend rent growth, so a flattening or decline in recent growth was understandable. The only noticeable element was that the metros seemed to act so much in concert.
Flash forward six months, and the story has reversed. The trendy tech metros that were struggling at the end of 2017 have changed course and have led the surging rent growth in the first half of 2018.
- Seattle went from -0.8% to 1.2%, also a change of 200 basis points.
- A 140-basis-point swing was seen in Portland (from -0.5% to 0.9%) and Denver (-0.4% to 1.0%).
- San Jose, at -0.5% in December 2017, was up 1.5% in June 2018, a difference of 200 basis points
- A 130-basis-point swing occurred in San Francisco (-0.3% to 1.0%).
- Boston went from -0.3% to 1.2%, a change of 150 basis points.
The report says, “To reiterate, it’s not unusual to see short-term volatility in rent growth on a metro level. That’s why our Matrix Monthly reports balance short-term and longer-term numbers. However, the similarity in performance is striking.
“The reason the metros are acting so much in concert is not entirely clear. These metros do have similar economic profiles and growth paths over time. The lesson could be that demand has remained robust, and until that changes, weakness in rent growth will likely be temporary.”
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