There was a weak end to a solid year for multifamily, with national average rents falling by $1 in December, according to the latest report from Yardi Matrix.
The report says 2019 will go down as a year without much drama in the multifamily sector as U.S. rent growth finished at a solid 3 percent.
Highlights of the report
- The average U.S. rent fell $1 in December to $1,474, with the growth rate falling 10 basis points from November. That said, U.S. multifamily rents finished a remarkably consistent 2019 up 3.0%. Year-over-year growth remained between 3.0% and 3.3% the entire year.
- Rents were essentially flat for the fourth quarter, which is a normal seasonal trend. The last time rents grew significantly during the end of the year was 2014 and 2015.
- Rent growth continues to be strong in all regions, led by secondary markets in the West and Southeast. Phoenix, Las Vegas, Sacramento and Nashville were among the top-performing metros all year. However, growth decelerated significantly during the year in some metros, notably San Jose, Orlando and Denver.
Rent gains softened, but the market is steady
The report says “the market is sound, with no red flags on the immediate horizon.
“Despite deliveries of roughly 300,000 units for the year, the occupancy rate for stabilized properties was 94.9 percent as of November, down only 10 basis points over the last year,” it says.
A healthy job market and low unemployment also helped handle the new deliveries of apartments during 2019.
- Rent growth softened, yet again, to 3.0 percent on a year-over-year basis in December, down 10 basis points from November. Year-over-year rent growth is at its lowest level since May 2018, when it reached 2.9 percent.
- Phoenix (7.7 percent) and Las Vegas (5.4 percent) have topped the rankings together for 16 months and counting. The last time these two markets did not top the charts was in September 2018, when Orlando claimed the first-place position, with Las Vegas and Phoenix following closely behind.
- Three California markets—Sacramento (5.1 percent), the Inland Empire (4.1 percent) and Orange County (3.9 percent)—ranked in the top 10. Despite California’s affordability issues and the recent passage of statewide rent control, these three markets continue to find a way to increase rents.
Bay Area is weakening
“The Bay Area is weakening due to concern over growth in startup technology firms, the feeble IPO market and the lack of affordable housing, which is prompting large employers to seek cheaper markets,” the report says.
- San Jose started the year at 4.7 percent and ended up -0.3 percent.
- San Francisco started at 4.5 percent and ended at 1.6 percent.
- Even Denver started at 3.4 percent and ended at 1.5 percent.
“All of these metros have a strong economic base, so it would seem likely that growth will rebound. Despite pockets of concern, 2020 should be a healthy year,” Yardi Matrix says in the report.
Also the report said multifamily continues to benefit from abundant debt capital sources. Total apartment lending in 2019 was on track to reach 2018’s record $338 billion.