Based on the Yardi Matrix May report, rents are rising and are up nationwide by $4 to an average of $1,381. Yet despite the welcome news of rental rate increase, the positive picture is somewhat tempered by the comparative rates at the same time last year – as well as other factors affecting rent growth like oversupply and slow wage growth. The Yardi report also profiled which areas saw the most (and least) gains and what might be on the horizon for multifamily rent.
Rents Are Up but Weaker Growth
While it’s true that rental rates did see growth, Yardi also reports that the growth was weaker than the same period last year. The year-over-year increase fell to 2% which was a drop from 2.5% in April. Yardi notes that the 50-basis point decline was the sharpest one-month drop in over six years. Similarly, rents are climbing in metro areas and have seen a $15 year-to-date hike, but that’s down from a $25 year-to-date jump for the same period, clearly delineating the declining growth.
Oversupply a Big Factor
According to the Yardi report, this continues a two-year pattern of declining rental growth and the primary cause is oversupply in the multifamily market – specifically in most metro areas. Even in areas with strong demand, the delivery of supply has affected both occupancy rates and rental growth. The Yardi report notes that with over 600,000 new units anticipated to be completed within the next two years, this trend may likely continue. Submarkets with the most deliveries and luxury apartments are the most likely to be affected, according to Yardi’s data.
Some Hot Areas See Rental Growth Slow
Areas with prior fast growth in 2016 and 2017 have seen growth slow. Cities like Portland, Seattle, and Austin have all been hit with decelerating rent growth. The reason? Yardi blames an overabundance of new supply in these areas.
Other Areas Are Heating Up
Thanks to factors like domestic migration and job growth, other cities see rent on the rise. Orlando saw a year-over-year increase of 5.3% and was at the top of the list. Las Vegas, Sacramento, and Tampa followed suit with increases. According to the Yardi report, employment and overall population growth are “strongest in secondary and traditionally late-cycle markets.”
The Yardi Forecast
Delivery of new units will continue to affect occupancy and rental growth. A strong job market is anchoring the economy, although additional job gains are unlikely – which may combine with the rental supply to impact the multifamily market. Yet with a robust labor market, wages may pick up which in turn could offset some of the supply issues currently affecting the multifamily market.