After years of incredible growth, rents in some of the nation’s most expensive markets are now seeing year-over-year declines, according to the latest data from Axiometrics.
In the markets with the highest rents—San Francisco, New York, and San Jose, Calif.—rent levels fell year over year in the third quarter. “While the national apartment market is still performing above the long-term average, the moderation from the unsustainable levels of 2014 and 2015 has come, as Axiometrics predicted,” says Jay Denton, Axiometrics senior vice president of analytics.
In the fourth-highest rent-growth metro, Oakland, Calif., however, rents increased—by 1.8% year over year.
“Job growth isn’t bad in the Bay Area and New York, though the rate has slowed over the past year, so demand for apartments is still relatively stron [there],” Denton says. “However, the amount of new supply that has been and will be delivered to these markets is extremely large and is forcing owners and developers to keep rents lower than they would like so they can remain competitive.”
On the plus side for San Francisco, its average third-quarter rent of $3,292 was 2.6% higher than the average second-quarter payment in that MSA. “What that tells us is that the metro’s decline came last fall and winter,” says Denton. “If job growth picks up, the apartment market will gain strength.”
Overall, the average effective rent nationwide this past quarter was $1,289 per unit per month, compared with $1,251 in the third quarter of 2015. Rents increased 3.0% year over year in the third quarter of 2016, more than 2 percentage points below the 5.2% rent growth of a year ago. The results mark the fourth-straight quarter in which the annual rent-growth rate has decreased.
Also of note, Houston saw its rent growth drop 2.8% in the third quarter, which Axiometrics attributes to job losses in the energy sector as well as a glut of supply in the urban core Montrose/River Oaks submarket.
“Urban cores in general are showing slowing performance,” Denton says. “The market is feeling the effects of the concentrated new supply in these submarkets. Nationwide, however, supply is just keeping up with the demand.”
Nationally in the third quarter, occupancy was 95.1%, compared with 95.2% in the second quarter and 95.4% in the third quarter of 2015.
Here are the top 25 markets by annual effective rent growth for the third quarter, according to Axiometrics: