The national average U.S. multifamily rent rose by $2, to $1,412, in August 2018, up 3.1% year over year (YOY) and 10 basis points from July 2018’s rent growth, according to the Matrix Monthly report by Yardi Matrix.
August marks the seventh-straight month of record-high national average rent growth, according to Yardi. The year-over-year rate of rent growth has remained steady throughout the year and currently sits at its highest rate since January 2017.
Of the nation’s top 30 metro markets, the top nine for rent growth last month were all located in the South or West regions. Orlando, Fla., led the ranking again, at 6.7% YOY rent growth, followed by Las Vegas, at 5.7%; the Inland Empire (Calif.), at 5.4%; and Phoenix, at 5.3%. Rent growth in Renter-by-Necessity assets continues to outpace Lifestyle-asset growth, 3.5% to 2.4%, as luxury rent growth remains hindered by oversupply.
Twenty-one of these markets, or 70%, recorded YOY rent growth of more than 1.5%. Many of these high-growth metros have rebounded from declining occupancy and slowing rent gains at the beginning of the year. Given this rebound, Yardi concludes that the supply pressures that have dampened rents and occupancy growth may only have been a temporary setback, especially as demand remains strong.
On a trailing three-month (T-3) basis, which compares the past three months of rent growth to the previous three months, rents rose by 0.4% at the national level. Lifestyle and Renter-by-Necessity asset rents both rose by 0.4% on a T-3 basis, reflecting a convergence of rent-growth rates in the short term.
Austin, Texas, and Charlotte, N.C., led the nation in T-3 growth, at 0.8%, followed by Atlanta, at 0.7%. All of these markets experienced negative T-3 growth in late 2017 and early 2018, owing to a large volume of deliveries. Heavy demand drivers have contributed to the rebound of these markets. Houston ranks lowest on a T-3 basis, at -0.1%. Yardi notes this may reflect the end of the boost driven by Hurricane Harvey, though it’s not possible to be certain yet.
The occupancy rate is on an apparent rebound, at 95.2%, after falling from 96.0% in late 2016 to 95.0% in the beginning of 2018. Occupancy is on the rise by 50 basis points or more this year to date, through July, in six of the top 30 metros, and by at least 40 basis points in nine. San Jose, Calif., had the highest occupancy gain, at 75 basis points, followed by Portland, Ore., and Las Vegas, at 70 basis points each. Yardi notes rent growth is rising in all metros with occupancy gains of 40 basis points or more.
While the extended length of the market cycle is a “topic of much discussion,” Yardi considers the market’s fundamentals balanced. Although over 300,000 new units are expected to come on line this year, the occupancy rate for stabilized properties has increased by 25 basis points from the beginning of 2018. Strong job growth, low unemployment, and slowly rising wages all contribute to the growth of new renter households, feeding the already strong demand for multifamily.
Overall, the report's outlook for the sector is positive, though Yardi is “cautious” about how much more rents can rise.
