The slowdown in rent growth for U.S. apartments is getting lots of attention. MPF Research’s final calculations for 3rd quarter 2016 showed annual growth at an even 4%. That’s certainly a solid performance, but still meaningfully off the 5.6% annual price bump registered in 3rd quarter 2015.
Looking at results for the nation’s 100 largest metros, 63 of them record less pricing power now than was seen a year ago.
While that general pattern is pronounced, about a third of the country’s metros are registering a different trend: Rent is still accelerating. Specifically, annual growth is up as of 3rd quarter 2016, compared to the 3rd quarter 2015 growth pace, in 34 spots. (There’s no change in momentum for three markets: Baton Rouge, Richmond and Tucson).
At the top of the list, today’s annual rent growth of 11% in Reno compares to 6.8% growth a year ago, with momentum up by 420 basis points. An increase of 410 bps, to 6.2% annual growth, is seen in Bridgeport/Stamford/Norwalk.
The annual rent growth pace has jumped roughly 300 basis points (from 270 bps to 320 bps, specifically) in Albany, Toledo, Little Rock, Colorado Springs and Riverside/San Bernardino. Increases near 200 bps (170 to 240 bps) register in Grand Rapids, Sacramento and Des Moines.
For the most part, these areas still exhibiting momentum in pricing power are locales where general economic growth has accelerated at the same time that apartment construction hasn’t yet kicked into higher gear. The fact that the markets are fairly small – only Riverside/San Bernardino and Sacramento rank among the 50 largest nationally – illustrates to some degree that it is taking a while for construction activity to trickle down from the biggest markets to the smaller ones. Metro size in and of itself isn’t the determining factor on whether rent growth is accelerating or slowing.
In a couple of exceptions to the general building activity seen in this group of markets, rent growth slowed during an earlier round of significant deliveries in Southwest Connecticut (specifically in Stamford) and in Little Rock. But pricing momentum is now back, after completions have lulled again.
Can the markets currently showing the most notable increases in pricing power sustain their momentum?
Building volume is the influence to watch, especially given that it doesn’t take a lot of construction to shift the direction of performance metrics in small areas. The area obviously vulnerable to rent growth struggles just ahead is Des Moines. Ongoing building there has suddenly kicked up to around 3,000 units, and those additions will grow the small metro’s existing inventory by around 7% during the near term.