For the third straight month, U.S. apartment rents saw double-digit gains, according to Yardi Matrix’s monthly survey of 119 markets. This time, rents rose $10, or 0.9%, in June, to an all-time high of $1,213.
In the second quarter, rents climbed 2.7% and 5.6% year over year. But it wasn’t all good news, as rent growth fell 30 basis points (bps) in June year over year and was down 110 bps from the recent high in October. “So rents are, in some sense, moderating,” Yardi wrote in its report.
“That said, year to date, average U.S. rents are up 4.2%, which is almost as much as our full-year forecast,” the report stated. “Seasonally, the second quarter is usually above trend for apartments (rents rose 2.9% in the second quarter of 2015), so while the bulk of 2016 rent gains may be behind us, rent growth may continue to surprise [us].”
Yardi’s national occupancy rate for stabilized assets was 96.1% in May for the third straight month. Increases were recorded that month in a number of metros, including Boston, at 40 bps; the Twin Cities and Tampa and Orlando, Fla., each at 30 bps; Washington, D.C., at 20 bps; and Philadelphia, at 10 bps. The reasons for the increase, Yardi writes, stem from increasing household formations, a healthy employment market, and the growing millennial population.
Regionally, the West Coast once again experienced the strongest rent growth year over year in June, on a trailing 12-month basis. Portland, Ore.; Sacramento, Calif.; Seattle; San Francisco; Los Angeles; the Inland Empire, Calif.; and San Diego were all above the 6.2% national average.
Brexit Effect?
Yardi forecasts little immediate impact on the U.S. multifamily market following Britain’s vote to exit the European Union (EU), largely because the U.S. is a relatively small trading partner. But there could be danger if the EU disbands, which could create upheaval in global financial markets.
Immediately after the Brexit vote, global stock markets fell. But Britain has as long as two years to negotiate the terms of its withdrawal from the EU, and there are indications that new leadership may want to drag out that process.
“The negotiations will usher in a potentially long period of uncertainty, which could lead global corporations to pause hiring and growth plans,” Yardi states. “Volatility in the capital markets could increase costs for securitized lenders, resulting in higher mortgage costs for borrowers.”
However, all that global financial uncertainty could bode well for the U.S. real estate market, by increasing demand for 10-year U.S. Treasury bonds and slowing the Federal Reserve’s plans to increase rates.
Yardi’s report further states: “Global investors, which seemed to pull back on capital allocations to the U.S. in the first half of 2016, might decide to increase investments in safe asset classes such as multifamily. And New York might benefit if financial institutions decide London is no longer the most suitable location as a global banking center. The bottom line, though, is that there is nothing to suggest a major impact on U.S. multifamily fundamentals, while much about the situation remains fluid.”
