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Here’s a List: Busy Construction Centers with Strong Class A Rent Growth

Here’s a List: Busy Construction Centers with Strong Class A Rent Growth

Rent growth for top-tier product apartments has begun to slow in some of the country’s most active construction centers.

Most notably, Houston’s Class A apartment rent change has turned negative, though the story there is about the stumble of the energy-influenced economy as much as it’s about the slew of new apartment units coming on stream.

In another example that has gotten lots of attention, annual rent growth in San Francisco’s top tier of product now is running at less than half the pace seen earlier. That’s an interesting one in terms of the reactions (overreactions, in some sense) to the shift. Pretty much everyone knew that the annual growth of nearly 10% recorded in 2011 through 2015 wasn’t a performance that would be sustainable over the long term. And today’s annual growth just under the 4% mark isn’t a bad result in the big picture.

Over the next year or so, other markets are likely to display the pattern seen now in San Francisco. Growth should ease from where it is now, but the numbers are so good now that even more modest price increases still would be healthy.

What key construction centers appear likely to weather escalating deliveries the best? Among metros where ongoing building will expand the existing inventory by at least 5%, these spots have the most room to register rent growth that’s still healthy, albeit lower than the current level.

Multifamily rental housing market statistics

West Palm Beach and Salt Lake City may be best positioned overall, with current Class A rent growth in the 6% to 7% range and inventory growth between 5% and 6% on the way.

Let’s put Nashville, Dallas and San Jose at the next rung for expectations. All three register current Class A rent growth near the 5% mark – just over that level in Nashville and just under it in Dallas and San Jose. Within the group, Nashville and Dallas could have a little more difficulty sustaining pricing power, since those markets will experience especially aggressive near-term inventory growth of about 8% to 9%.

One more market to note in terms of some solid positioning moving ahead is Seattle. The list above is limited to markets with near-term inventory growth of at least 5%. Seattle’s 4.7% near-term inventory growth rate technically doesn’t quite meet that threshold. But most people certainly think of Seattle as an active construction market. Its current Class A rent growth tally is stellar at 7.4%.

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