Apartments Compete for New Renters Amid Burgeoning Supply

A healthy supply of new apartments under construction or coming on the market is helping to give renters a break. Leasing is accelerating, but rent growth is slowing. 

Apartment completions are expected to rise to the highest levels since the 1980s in the second half of 2023 and early 2024, according to a new RealPage report. More than 500,000 a year are expected to complete across the country in each of the next two years. Construction is occurring in markets of all sizes and in all regions, giving renters more options.

This means that unlike 2021, when it was relatively easy to fill units and retain residents, operators are now focusing on customer service and automation to improve the resident experience and keep occupancy and retention high. Fortunately for operators, renter retention rates appear to be stabilizing again after a steep fall-off early in 2022. In May 2023, 52.3% of apartment renters with expiring leases signed renewals.

Modest rent growth has also returned. But unlike the typical May, which is usually a time of large seasonal rent hikes, this year saw the smallest effective increase in over a decade – just 0.39% month over month. Year over year rent growth cooled to 2.3%.

Renewal rent growth also slowed for the 10th straight month to 6.5% in May. Unlike new renters, renewers typically receive a discount, RealPage stated. “But that gap is quickly shrinking, which means renewal rents will almost certainly continue to decelerate – especially as operators prioritize retention.”

“What we are seeing right now is that the new supply is doing what it’s supposed to do – which is put downward pressure on rent growth,” said RealPage SVP and Chief Economist Jay Parsons. For the first time since 2020, he noted, property managers are having to compete for renters.

The report found rent growth of new leases is highest in regions of the country where apartment construction is more limited, namely the Midwest and Northeast—areas that usually experience steady markets. In May, these regions accounted for 12 of the top 15 spots for annual rent growth among the nation’s 50 largest metro areas. 

Northern New Jersey headed the pack with 7.2% effective rent change on new leases, followed by Cincinnati and Indianapolis with rent increases over 6%. The U.S. average was just 2.3%.

In contrast, eight major metros reported year-over-year cuts in effective rents for new leases. This group included Phoenix, Las Vegas, Sacramento, Austin, San Francisco, Oakland, Jacksonville and Atlanta. Tampa could soon join them.