Urban Core Apartment Pricing Clout Wanes

How quickly might a situation change/? Definitely within the span of a few years in the apartment sector where prices went up as vacancies shrank. And now they’ve gone down or stabilized as a new supply of apartments has caused rents to decrease and in some submarkets the situation has even worsened over the past year, according to RealPage. 

Overall, annual effective asking rent change has flattened throughout the country, leading to modest growth of just 0.3% in the year ending last month. In contrast, rent growth experienced a double digit increase of 10.6% only a year ago.

And this has happened not just in isolated cases but among every single urban core submarket in the country’s largest 50 apartment markets where pricing power has eroded in the past year.

The trend is particularly acute in the South where areas posted historical peaks in rent growth last year and are now experiencing significant course corrections and downturns. But it’s also happening elsewhere. Downtown Salt Lake City/University is the urban core losing the most pricing power this past year. Its effective asking rents were cut 6.5% in the period ending August 2023, the worst for any of the urban cores nationally. Before, it had experienced annual growth of 15.2% a year ago. The market also had among the largest inventory increases in the past year, as more than 2,000 apartment units were delivered and increased the base by 10.5%. The result was that occupancy dropped for a decade low, which spurred operators to lower prices.

Other urban cores with deep rent cuts in the year ending this August were Central Nashville and Midtown Atlanta. In the Nashville area, where the year-over-year rent change was down 4.9%, part of the reason was that developers completed more new units than any other urban core did nationwide in the past year, specifically 3,900 units in the past 12 months. That increased the area’s existing inventory base by 15.1%. Atlanta, down 3.8%, also had an inventory increase of 7.8% in the past year. Charlotte, N.C., also lost 3.5% in rent growth.

Several Florida urban cores also lost their pricing power over the last year, and again for the same reasons of having seen prices shoot up and more new apartments become available, then as those markets settled, pricing was adjusted. A big exception was Miami/South Beach, which became the only urban core still seeing rent growth continue, but not much. Its uptick of 2% was far less than the 23% surge it experienced in the prior year, ending August 2022.