Class A Apartment Rents Driving What Little Growth There Is

In August, apartment rent growth stopped throughout the country on an annual basis, according to RealPage. But there were variations by product class and also by geographic market. And on aggregate, it was Class A rent changes that boosted the nationwide performance. 

As of last month, annual effective rents climbed 0.7% in the Class A category, but in contrast the rent change for Class B was a stagnant change of 0.0% and for Class C was a weaker reading of 0.4%. Overall, the annual effective asking rent change was 0.3% across the U.S. last month.     

In some markets, the differences in rent performance by category class are worth calling out. For example, in some of the largest apartment markets rent change in Class A units are weighing down market-wide readings, running 700-plus basis points below Class B and C readings and as much as 300-plus bps below market averages.

Cincinnati is a prime example and most extreme of this Class A underperformance. In August, Class A rents there were growing 0.5% on an annual basis, compared to readings above 5% in Class B and Class C units. The city had a 3.8% annual rent growth reading, one of the country’s top rent growth performers in August, which put it No. 2 among the nation’s 50 largest markets, and only after Newark, N.J.

Other markets followed a similar trend, the RealPage report found. Columbus, Chicago, Miami and Indianapolis all ranked among the top 10 markets nationwide for rent change in the year that ended in August. The Midwest markets on the list also experienced low-supply pressure that tends to affect the Class A rents more than the less expensive B and C classes.

The remaining markets on the list present what the report terms a mixed bag of results. The West Coast continues to have the largest share of markets posting rent cuts, though San Diego still is performing well by regional standards. It’s one of the country’s most expensive apartment markets with average rent hitting $2,861 in August. Average Class A rents in San Diego were higher at $3,303 and a $1,200 premium to average Class C rents at $2,187. A similar trend is happening in Miami where average Class C rents of $1,778 run about 45% less expensive than Class A rents at $3,208.

In Nashville in the year-ending second quarter of 2023, the Tennessee city added more than 10,000 units, which pushed existing inventory up more than 6%. Another 29,000 units are under construction there and 13,000 of them are expected to come online in the next four quarters. Class A rents were cut 3.1% in August and probably due to managers looking to maintain occupancy rates because of lease-up pressure from all the new units becoming available.

At the same time, some markets reflect a very different scenario such as Sacramento, Tampa and West Palm Beach, Class B and C product classes reported annual rent cuts last month. Class A, however, reported rent growth, helping to boost rent performance in those markets.