Class A Rent Performance Weighing Down Some Apartment Markets

Across the U.S., apartment rent growth all but halted on an annual basis in August, though market-level readings varied.

Class A rent change, however, boosted nationwide performance on aggregate. As of August, annual effective rents climbed 0.7% in the Class A space, followed by stagnant rent change (0.0%) in Class B units and a weaker reading (0.4%) in Class C units. Overall annual effective asking rent change was just 0.3% across the U.S. as of August, according to data from RealPage Market Analytics.

Apartment Class A

In some markets, however, that storyline runs counter to current rent performance by product class. In several of the nation’s largest apartment markets, rent change in Class A units – often a proxy for new supply – is weighing down marketwide readings. In some markets, Class A rent change runs 700-plus basis points (bps) below Class B and C readings and as deep as 300-plus bps below market averages.

Apartment Class A performance

Cincinnati marks arguably the most extreme example of this Class A underperformance. As of August, Class A rents were growing just 0.5% on an annual basis in Cincinnati, compared to readings above 5% in Class B and Class C units. At a 3.8% annual rent growth reading, Cincinnati is one of the nation’s top rent growth performers in August, ranking no. 2 among the nation’s 50 largest markets, behind only Newark.

About half the markets on this list follow a similar trend. Columbus, Chicago, Miami and Indianapolis all rank among the top 10 markets nationwide for rent change in the year-ending August. The Midwest markets on this list also generally have low supply pressure that tends to impact Class A rents more than less expensive product classes.

The remaining markets present a mixed bag of results. The West Coast continues to see the highest share of markets posting rent cuts, though San Diego remains a strong performer by regional standards. San Diego is one of the nation’s most expensive apartment markets with average rent hitting $2,861 in August. Average Class A rents in San Diego ($3,303) run at a nearly $1,200 premium to average Class C rents ($2,187). Thus, San Diego might be better characterized as a market where Class C units outperform than as a market where Class A underperforms.

The same could be said in Miami, where average Class C rents ($1,778) run about 45% less expensive than Class A ($3,208) counterparts.

Nashville may seem like a wildcard on this list until layering in the context of its simply massive supply pipeline. In the year-ending 2nd quarter 2023, Nashville added over 10,000 new units, growing existing inventory over 6%. And another 29,000 units are under construction in Music City, with about 13,000 of those expected to come online over the next four quarters. Class A rent cuts of 3.1% in August were likely a result of operators preserving occupancy amid lease-up pressure from new product.

Meanwhile, a handful of markets demonstrate the opposite storyline. In Sacramento, Tampa and West Palm Beach, Class B and C product classes reported annual rent cuts in August while Class A product reported rent growth, clearly boosting marketwide rent performance.