U.S. apartment rent growth is moderating, and some of that slowdown is due to essentially flat rents in a handful of large metros.
Nationally, rents were up 2.5% annually as of mid-2018, the softest upturn since 2010. In five large markets, however, rent growth measured 1.0% or less, and 10 saw increases of 1.0% to 1.5%.
Among the nation’s largest 50 metros, Chicago registered the poorest rent performance in June. Chicago rents inched up by just 0.3% in the past year, the weakest performance this metro has seen since the price cuts of 2008 through 2010. Rent increases in Chicago topped out at 6% in 2011 before softening, and have averaged closer to 2% in the past four years. Much of the slowdown is due to years of heavy construction activity in the market’s urban core. Downtown-area inventory has swelled nearly 25% in the past four years.
Austin rents were up just 0.6% in the year-ending 2nd quarter. This was the sixth consecutive quarter of essentially flat rents for Austin. Annual price increases in the Texas capital peaked in 3rd quarter 2011 at 9.3%, but have remained essentially flat since a year ago. Unlike other low-performing markets, Austin’s recent struggles are concentrated in the middle- and lower-tier apartment stock, indicating affordability headwinds. Much of the market’s job growth has come in sectors like technology and other high-paying fields – a boon for top-tier apartments, but not for their more-affordable counterparts.
Recording a price increase of 0.9% in the past year was Portland. Portland’s rent growth peak was late in the cycle, hitting nearly 13% in 2015 before losing steam as the market moderated and apartment completion volumes held steady at elevated levels.
Fellow Pacific Northwest market Seattle registered rent growth of 1.0%, one of the country’s most dramatic slowdowns in rent growth in the past year. Price hikes here were close to 6% just a year ago before falling dramatically. Performance has softened in the face of Seattle’s rapidly-growing inventory base. The metro’s apartment stock has grown at an average of 3% every year since 2013.
Also registering a 1.0% increase was Milwaukee. The Wisconsin market has registered more conservative pricing strategies in recent years, with rent increases averaging around the 2% mark during the current cycle. Even the rent growth peak was moderate at 4.1% in 2012. Due to this conservative pricing, Milwaukee has maintained strong occupancy between 95% and 98% since 2013.
While those five markets are seeing increases of 1.0% or less, 10 others are seeing slightly better, but still mild growth of 1.5% or less.
Markets posting rent growth of 1.1% in the past year were Dallas, Cleveland and Washington, DC. Dallas price positioning has remained relatively strong throughout much of the cycle, with population and job growth spurring apartment demand, even in the traditionally low-performing Class C product line. But even strong demand hasn’t been able to keep up with record apartment supply volumes, causing occupancy and operators’ pricing power to ease in top- and middle-tier units during the past year.
Washington, DC, which also registered rent growth of 1.1% in the past year, saw price hikes reach around 6% very early on in the cycle in 2010. Since then, the pricing in this market has suffered under the weight of a now 5-year-old supply wave that flooded the market with new units. Price increases haven’t reached 2% since 2012 as operators across the market have reined in their pricing strategies in an effort to preserve occupancy.
Cleveland price increases have been modest, averaging around 2% during the cycle. But this recent showing is the softest this market has seen since the rent cuts of 2010.
Five markets recorded price increases of 1.2% in the year-ending June. Among them, Nashville had been one of the strongest performers of the cycle, with annual rent growth around 5% to 7% over much of 2012 through 2016. Performance plunged as massive amounts of new supply hammered market fundamentals. Since 3rd quarter 2017, annual prices in Nashville have remained relatively flat.
East Coast markets of New York, Newark and Baltimore also registered rent increases of 1.2%. Both New York and Newark have averaged rent growth at about 2.5% during the current cycle. The peak for both metros came early in 2011 at 7% to 8%. Neither of these markets have recorded growth of more than 3% since 2015.
While rent growth in Baltimore also recorded a cycle average of around 2.5% and peaked in 2011, the top spot for this metro was softer at around 5%. After coming down from the peak, Baltimore’s price increases have remained moderate for seven years since.
Prices also increased 1.2% year-over-year in St. Louis. The Midwest market is prone to instability, seeing rents fluctuate significantly from quarter to the next. Such swings balance out to modest long-term growth, and St. Louis tends to be a laggard on a national scale.
Closely trailing those five markets was San Antonio, which saw rents rise just 1.3% in the past year. San Antonio’s cycle performance pattern resembles Baltimore’s, with a moderate cycle average and peak.
Finally, Cincinnati earned a reputation of a consistent performer throughout the much of cycle until prices spiked last year. The momentum proved short-lived, as rent growth has since plunged, landing the Ohio market among the nation’s weakest performers in mid-2018.