Inside the Deceleration of Apartment Rents

From a national perspective, for the first time since 2020, as many as a dozen apartment markets saw absolute asking rents decline in a month, according to Apartments.com’s July 2022 Rent Growth report.

Five other markets saw no changes in rent – during a time that some say is seasonally strong for apartments.

“The deteriorating rent situation highlights a significant collapse of demand in the sector when new unit deliveries are projected to hit 230,000 in the second half of 2022,” Jay Lybik, National Director of Multifamily Analytics, CoStar Group, said in prepared remarks. 

Jeff Adler, vice president and industry principal, Yardi Matrix, said his firm is seeing the same data trend.

“There is a clear deceleration happening, off a very high pace,” Adler tells GlobeSt.com. “We see this trend as we had expected, and expect it to further decelerate through the balance of the year, mitigated by the higher cost of for sale housing and delayed deliveries of new supply.”

BREAKING: Miami Rents Dropped $11 Last Month

The typically high-flying Miami led the charge with average asking rents down $11 during July.

That represents a trend of some of the markets with the fastest growing rent in 2021 are now experiencing the quickest pullback, according to Apartments.com. Palm Beach rents have decreased from 30.6% growth in Q4 2021 to 12.7% at the end of July 2022. Tampa and Las Vegas have also seen their rent growth decline by over double-digits this year.

Carl Whitaker, director of research, RealPage, tells GlobeSt that it’s maybe fairer to characterize today’s rent growth as ‘leveling off’ from last year’s record pace more so than ‘moderating.’

For example, Whitaker said, asking rents grew 3.1% in 2Q22 versus 1Q22’s mark and that was the sixth consecutive quarter in which rents grew. 

“Context is key here, as comparisons to last year’s never-before-seen (and likely never-to-be-seen-again) demand aren’t necessarily the most ‘fair’ comparison. For quick sake of comparison, 2Q21 asking rents grew 6%, meaning that you nearly had two years’ worth of typical annual rent growth squeezed into one quarter alone.

“Absorption rates have certainly slowed, which suggests fewer new leases are being signed and traffic is easing. But the share of renters signing a renewal was 58% in the year-ending 2Q22 stats. 

“From that perspective then, it can be said that a more holistic view of apartment demand suggests appetite remains strong. It’s just that the components of demand – in other words, new leases versus renewals – are beginning to show some bifurcation as the former eases and the latter remains well-above historic norms.”

NC Still Getting 40% Lift on Some Renewals

Mary Gwyn, chief innovator, AptDynamics, tells GlobeSt.com that she’s not seeing rent growth slowing within her apartment home portfolio of 5,000 units spread throughout North Carolina.

“I’m reading that it’s slowing, but I’m not seeing it,” Gwyn said. “We’re getting increases of 17 percent to 40 percent on renewals. For lease trade-outs, the rent increases can be even higher. This is happening with units that are getting renovations, and some that aren’t.

“Sometimes this is because we’ve acquired properties where past owners didn’t focus on raising their rents, and theirs were well below the going rate. Some had gone years raising them only a few dollars a year.”

Not Much Vacant Inventory in D.C.

In D.C., Karen Kossow, marketing director, Paradigm Management, tells GlobeSt.com that her company has seen robust rent growth over the past few months. It operates 20 communities in and around that market.

“Typically, this is a seasonal time for strong rent growth,” Kossow said. “Most of our communities are not carrying much vacant inventory right now which has allowed for rent growth,” she said. “With availability now stretching into the fall months for many properties, you will likely start to see growth slow. In the D.C. Metro market, demand starts to diminish when Congress goes out of session. 

“We may see a little bump again in September and then head into fall/winter seasons where our demand tends to be at its lowest.”

“For our market specifically, although we do have a large pipeline of new product, we would typically expect rent growth to level off some as we hit August and going into the fall months.”