Leasing environments are growing more competitive as new apartment deliveries accelerate. That’s especially true in the high-rise product niche, since the share of total construction occurring in the urban core during this economic cycle about doubles that product segment’s share of all building in the 2000s cycle.
Annual rent growth at high-rise apartment communities has slowed to an average of just 1.4% nationally, compared to 2.4% in mid-rise properties and 4.7% in garden-style projects.
Cuts Are Biggest in Houston and San Francisco
Among the country’s 50 largest apartment markets, seven are experiencing meaningful rent reductions in the high-rise apartment sector.
Houston’s 7.1% decline for high-rise apartment rents is the steepest nationally, as the metro is struggling to absorb a big wave of units in urban core towers at a time when the stumbling energy sector has dampened economic growth.
San Francisco, too, is recording a pronounced drop in pricing power among high-rise apartment properties. High-rise rents are down 6.2% on an annual basis. That’s an oddly steep decline given big-picture apartment market fundamentals in San Francisco remain in great shape, even with more new construction than is typical in the metro. On the other hand, pricing in the Bay Area perhaps got over-inflated during the past few years. Today’s average monthly rent for a high-rise unit in metro San Francisco still tops $3,400, even after the haircut taken during recent months.
Rents for high-rise apartments are off approximately 4% to 5% across Indianapolis, Jacksonville and Milwaukee. Annual pricing cuts right around the 3% mark are seen in Portland and Charlotte, two metros that are posting really strong rent growth performances for everything except the urban core high-rise niche.
High-Rise Rents Are Basically Flat in Many Locales
Baltimore, San Antonio and Providence register high-rise rents off a tiny bit from year-ago levels, but it’s perhaps more appropriate to view pricing in those spots as largely flat. Also, given the inventories of high-rise product are fairly limited in all three areas, the performances in that niche don’t particularly impact overall market health.
Perhaps of more concern, five metros with lots of existing high-rise product and lots more on the way are hanging on to positive annual rent change in that sector by a thread. Rents are up no more than 1% year-over-year in high-rise apartments across Boston, Chicago, Dallas, New York and Washington, DC. If high-rise rents in that block of markets go negative in 2017, the national performance numbers for the product niche will lose steam very rapidly.