Apartment Rents Drop Even in High-Flying Markets

Florida, once the highest-flying state in the U.S. for apartment rent increases, is now seeing rents fall in many cities while rents rise in the U.S. as a whole. A similar phenomenon is occurring in Austin, TX.

A new study by RealPage Analytics shows that in 3Q 2023 apartment rents fell by an average of 1% in Florida, while in the U.S. they rose 0.5%. The dip in Florida followed two years of rising rents spurred by population influx and a housing shortage, according to an earlier analysis by the company. “Now that new delivery volumes have increased, and the market has had time to settle, it’s not surprising to see pricing in Florida come down once again,” the analysis noted.

In some markets which formerly experienced nation-leading rent growth the third-quarter rent drop was even more significant. In Naples, rents fell 4.2%, in Cape Coral 3.8% and in Sarasota 3.6%. The only major Florida city to see rent growth was Tallahassee, where rents rose 0.6%.

In Austin, rents dropped 5.6% because of an oversupply of new apartments. “New apartment development has been extreme in Austin in the past five years, transforming both the skyline and the bottom line,” RealPage commented. Developers were responding to an influx of new residents that boosted population 2.7% from 2021-2022.

By 3Q 2023, Austin had an annual supply of 16,481 apartment units but demand for just 10,018. The occupancy rate eroded to 93% – the lowest in over a decade, 140 bps behind the U.S. norm. By comparison, the five-year average for supply was 11,420 units with demand for 10,139 and an average occupancy of 94.4%. “One quarter of all existing apartment inventory in Austin was built in the past five years. Nearly 59,000 units have been built there since 3Q 2018,” the report noted. “This was [the nation’s] most extreme inventory increase in the past five years.”

Austin submarkets that led in both supply and demand in the past year were the northern suburbs Round Rock/Georgetown and rapidly growing East Austin, site of a Tesla 2,500-acre gigafactory. The plant, which now employs 20,000, will add another 40,000 as two new models are rolled out.

Only the metro’s southern-most submarket, San Marcos, home to Texas State University’s student population, saw occupancy higher than 94%. Occupancy of Class C properties stood at 92.7%, but rates were a little better for Class B and Class A product.

To halt the slide in vacancies, landlords slashed rents by an average of 5.6% in 3Q 2023. “This was the worst showing nationwide and the worst Austin has seen since 2010, when the economy was recovering from the Great Recession,” the report commented.

And with another 32,700 units to be delivered in the coming year, no immediate relief is in sight.