Seasonality and the high volume of unit deliveries in the Sun Belt dampened multifamily rents in August. After a six-month streak of positive rent growth, the average U.S. asking rent decreased $1 to $1,741 in August, while year-over-year growth was unchanged at 0.8%, according to the latest Yardi Matrix National Multifamily Report.
According to Yardi Matrix, the news was not all bad. Despite the rapid supply growth, the national occupancy rate remained unchanged at 94.7%.
Changes in economic conditions are on the horizon for the multifamily industry, with potentially lower interest rates and slower growth.
“A rate cut in late September now appears to be imminent. … Lower rates will be a relief to multifamily, potentially unlocking asset sales and refinancings while reducing the pressure on properties that are underwater on their mortgages,” noted Yardi Matrix.
However, the flip side of the rate cuts will be that they are the result of the economy slowing.
“Recent revisions now estimate job gains for the 12 months ending in March at 800,000 fewer than originally reported. That downgraded the job market from exceptionally robust to merely strong. The declining quits rate and weakness in office-using job growth are other signs of slowing, which could turn into a drag on consumers and apartment demand,” according to the report. “Absorption has been a big story in recent years, and with supply growth on track to be strong through 2025, it is vital to multifamily’s health.”
Year-over-year rent growth continued to be highest in East Coast gateway cities and Midwest secondary markets. New York City continued to lead the way at 4.8% growth year over year, followed by Kansas City, Missouri, at 4.1%; Washington, D.C., at 3.4%; Indianapolis at 3%; and Boston at 2.9%.
However, the Sun Belt metros with an influx of supply continued to experience negative year-over-year rent growth. Austin, Texas, saw -5.5% year-over-year rent growth for August, followed by Raleigh, North Carolina, at -3.4%; Phoenix at -2.9%; and Orlando, Florida, and Atlanta at -2.7%.
Month over month, 19 metros posted rent drops. Rents were up 0.1% in the renter-by-necessity segment and fell 0.2% in the luxury lifestyle segment.
“Because most deliveries are lifestyle units, the influx of supply in recent years has led to more competition within the segment,” noted Yardi Matrix. Month-over-month rent growth in the lifestyle segment was 1% or higher in only one metro: Detroit. Lifestyle rents fell in 19 of the top 30 Yardi Matrix markets, led by Raleigh, -1.1%; Phoenix, -1%; and Orlando, -0.9%. Month-over-month growth for the renter-by-necessity segment increased in 13 of the 30 metros, led by Kansas City, 1.1%; Indianapolis, 0.9%; and Boston, New Jersey, and San Diego, 0.5%.
On the single-family rental (SFR) side, asking rents decreased $7 in August to $2,164, with year-over-year growth dropping 40 basis points to 0.7%.
“SFR had a rare month with negative rent growth in August, but it is likely a temporary blip as occupancy remains healthy,” noted the report.
