Some Markets See Big Shifts in Rent Growth in 2019

While rent growth in the U.S. overall didn’t see much change throughout 2019, a handful of markets charted notable momentum in the past year.

After hovering at or above the 3% mark for all of 2019, annual rent growth for new leases in U.S. apartments faded to 2.8% right at the end of the year. That rate was 50 basis points (bps) behind the 3.3% increase in calendar 2018.

While 28 of the largest 50 apartment markets saw rent growth momentum weaken in 2019, California and Florida markets claimed the steepest setbacks. All three Bay Area markets made the list for the nation’s sharpest declines in the past year. San Jose and San Francisco rent growth dropped from above 4% in 2018 to below 2% in 2019, while Oakland price increases fell from 3% to roughly 1%.

Construction has picked up across the Bay Area in the past five years. Northern California is an area where operators are particularly sensitive to supply and drastic shifts in rent growth often reflect that. The Bay Area was a national leader for rent growth in the first five years of this economic cycle, only reining in hikes– which were in the double digits as recently as 2015 – more recently, as supply volumes spiked. Oakland saw unusually high construction activity, and operators reacted by cooling rent growth to 1.1% in 2019. This was one of the softest rent increases in the country, with only Houston trailing.

Population and economic growth helped Orlando assume the national rent growth throne in 2018. But after the effects of Hurricane Irma wore off and job growth slowed in 2019, the Florida market faltered. Rent growth decelerated from 4.9% in 2018 to 2% in 2019.

Jacksonville rent growth also peaked in 2018. Rents climbed 2.3% in 2019, 240 bps below the year-ago showing and well under the five-year norm. While apartment demand and occupancy are holding up in Jacksonville, operators seem to be taking a proactive approach as supply volumes are set to keep climbing in the near term.

Columbus was the only market outside of California or Florida to see rent growth decelerate 180 bps or more in 2019. Rents had been growing well in this Midwest market throughout the past five years, averaging around 3%. In the final six months of 2019, however, growth tapered off to about half that rate. While occupancy is in good shape in Columbus, demand dropped meaningfully in the past year, registering at about half 2018’s volume.

Meanwhile, 22 of the nation’s largest 50 markets bucked the national trend as rent growth momentum increased in 2019. Most notably, Nashville rent growth climbed 250 bps ahead of 2018’s 2.7% hike. Nashville ended 2019 with 5.2% growth – the third highest rate in the nation behind only Phoenix and Las Vegas. Though high supply took a toll on Music City’s rent growth in 2017 and 2018, prices rebounded in 2019 as occupancy also strengthened nearly 100 bps year-over-year among falling completion volumes.

Midwestern neighbors St. Louis and Kansas City saw rent growth go from less than 2% in 2018 to 3.1% in 2019. Annual price hikes in St. Louis hit the 3% mark in mid-2019 and have remained stable and well above the market’s five-year average of 2% since. Limited supply throughout the cycle led to tightening occupancy, which hit a 20-year peak in 2019.

Kansas City’s 2019 rent growth performance was in line with its five-year norm, but well ahead of price increases that had faded throughout much of 2017 and 2018 amid waning demand. Absorption recovered in 2019, however, allowing occupancy to also hit a 20-year peak.

Dallas rent growth increased 130 bps in 2019. Even with this upturn, rent growth remains below the market’s five-year average of 3.7%. Back in 2016, Dallas rent growth was topping the 6% mark, but supply volumes – which are mostly higher-end product – peaked in 2017 and have stayed high. Even more stock is on the way, as deliveries are scheduled to persist.