Renewal-Lease Rent Growth Remains Substantial
Apartment owners and operators generally like to retain renters when initial leases expire. If residents stay in place, the property owner avoids the cost of a few days of vacancy between leases, as well as the unit make-ready and marketing expenses required to get the apartment filled again.
Adding to the motivation to hold onto existing renters, price growth for renewal leases now exceeds the price bump for new-resident leases in many locations.
Renewal-lease rent growth currently comes in at 4.5% across the country’s 50 largest apartment markets. Today’s renewal-lease rent growth basically matches the 4.6% figure achieved a year ago, but there has been some slowdown in performance since renewal-lease rent growth peaked at 5.3% in late 2015 and early 2016.
In comparison, apartments leased to new residents are posting prices up 2.6% compared to the rent paid by the previous occupant.
A Few Spots Are Really Losing Momentum
While current renewal-lease rent growth is largely in line with the year-ago level for that same metric in most metros, significant deterioration in pricing power registers in a few spots.
Most notably, pricing power for renewal leases is off more than 200 basis points in New York and Seattle. For New York, that means renters are absorbing 3.4% price bumps to renew apartment leases, versus 5.6% increases recorded a year ago. Seattle’s current renewal-lease rent increase comes in at 4.9%, versus the clearly unsustainable 7.0% growth posted a year ago.
Renewal-lease rent growth is down 100 to 180 basis points across Sacramento, Portland, Nashville, San Jose and Miami. However, San Jose’s 6.0% renewal-lease rent growth and Sacramento’s 5.7% jump still rank among the biggest increases recorded nationally. Indeed, among all the metros where renewal-lease rent growth is slowing considerably, only New York and Miami post pricing power meaningfully below the national norm.
Is There Performance Acceleration Anywhere?
While renewal-lease pricing power has inched up a tiny bit during the past year in a few spots, only two locales record big moves.
Houston’s apartment market registers strong performance momentum generally, as demand is up – due to accelerating job growth and the displacement of some single-family homeowners following Hurricane Harvey – at the same time that deliveries are slowing from the aggressive levels seen earlier. Renewal-lease rent growth has risen to 4.7%, jumping 260 basis points from the reading of 2.1% seen a year ago.
In Detroit, renewal-lease rent growth has climbed to 4.8%, 150 basis points ahead of the 3.3% growth recorded a year ago. While Detroit isn’t a big demand center for apartments, limited construction activity has left the metro’s existing stock – at least the units of desirable quality – fully occupied.