Like most metros across the country, Pittsburgh realized substantial apartment rent growth specifically during Q2 2014. Effective rents for new leases climbed 1.6% during the three-month period. However, that one period when significant pricing power registered did not change the big picture story, as annual rent growth has come in at mediocre levels for the past year and a half. The annual rent growth figure as of mid-2014 was 1.1%, with the bump in pricing during Q2 barely outweighing flat to declining rents during the three previous quarters.
Somewhat limited apartment rent growth in Pittsburgh does not reflect an occupancy problem. Today’s occupancy reading in Pittsburgh stands at 96.5%, well above the national norm. Furthermore, in one of the more impressive runs seen anywhere across the country, occupancy in Pittsburgh has topped 95% since the middle of 2006.
Pittsburgh’s generally lackluster overall rent growth performance of late can be traced to basically flat rents in top-tier product. Owners and operations are not pushing rents in the most desirable existing communities in reflection of concerns that residents will opt for the new stock that is coming on stream. Over the past year, Pittsburgh has added just over 1,300 new apartments. While the corresponding 1% inventory expansion pace is fairly mild by national standards, it is a more aggressive building pace than is typical in the metro. Another 1,000 or so apartments remain under construction, with delivery dates for most of those additions set for the last few months of 2014.
Flipping to the other end of the product spectrum, Pittsburgh’s class-C apartment communities, which don’t face any further competition from the upturn in mostly higher-end completions, are producing notably better annual rent growth that approaches the 3% mark. For the middle-market properties, recent rent growth results generally fall between the minimal momentum at the top-tier developments and the pretty healthy results at the bottom-tier properties. Still, the general rent growth performance has been inconsistent in these class B offerings, coming in at solid levels one quarter and then dwindling to nothing the next.
MPF Research anticipates that Pittsburgh’s rent growth pace should accelerate to some degree over the coming year, based in part on what appears likely to happen on the submarket level. One of the challenges of late has been getting any rent growth in the top-tier product in the two most urban submarkets – Central Pittsburgh and Oakland/Shadyside. While that pair of neighborhoods accounted for close to half of the metro’s completions during the past year, their combined share of ongoing construction is down to roughly a third of the metro total. Thus, owners and operators of the best properties in the most urban settings soon should feel more confident when setting rents.
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