SANTA BARBARA, CA—There are two ways to look at one of the twin pillars of multifamily fundamentals (the other, of course, is occupancy), and both are correct. One way to view rent growth is that it's occurring at a slower pace these days than we saw in 2015 and 2016. Another is that it continues to occur in the vast majority of cities, and at a healthy clip.
Citing Yardi Matrix data, RentCafe reported Wednesday that rents grew year over year in 89% of the 250 largest US cities during January. Nine percent registered flat growth for the month, while just 2%, or six cities, experienced a Y-O-Y decline.
Overall, rents in these 250 cities grew 2.8% between January 2017 and last month. While that annual growth represents a deceleration from years prior, it's still ahead of the long-term average of 2.3%.
Among the half dozen cities with Y-O-Y declines in asking rents, the steepest drop occurred in Lubbock, TX, which has “a large new inventory of apartments to fill,” RentCafe says. Lubbock's 6.3% Y-O-Y decline is more than twice as fast as the second-ranked metro area on the list, Norman, OK (down 2.3%), which also has had a proportionally large amount of new supply come on line in the past few years.
The only large market to experience a Y-O-Y drop in asking rents was Brooklyn, continuing a two-year streak of declines. New York City's most populous borough began last year with a 1.7% decline in rents, and began the current year with a further 1.1% drop. However, it remains one of the nation's 10 most expensive markets in which to rent an apartment.
If Lubbock saw the biggest Y-O-Y drop in January, then it was another western Texas city, Odessa, that came in at the opposite end of the spectrum. Rents in this oil center grew a whopping 35% Y-O-Y in January, while its neighbor in what's informally known as the Petroplex, Midland, wasn't far behind at 31.4% annual growth. The predominance of smaller cities among the fastest growth markets for asking rents continues a trend RentCafe identified for '17.
Three new markets have entered RentCafe's top 10 for fastest-growing rents—including two that are suburbs of larger cities with lower rents and slower Y-O-Y growth. Widely regarded as the poster child for strong rent growth among large cities, Sacramento comes in slightly below its suburb of Roseville, CA. Eighth-place Roseville also has higher average rents than ninth-place Sacramento: $1,603 and $1,287, respectively.
Gilbert, AZ, within the Phoenix SMSA, ranks seventh among fast-growing markets, and its average rent of $1,156 is ahead of the $941 average for Phoenix. Its Y-O-Y growth rate is also faster: 8.5%, compared to 5.1% for Phoenix.
Also new to the top 10 is Fort Collins, CO, where residents and Colorado State University students compete for a limited number of apartments. Rounding out the top 10 are Buffalo, NY, in third place with Y-O-Y growth of 12.1%; fourth-ranked Lancaster, CA, up 10.2%; fifth-place Reno, NV, 9.6%; and sixth-place St. Petersburg, 9.3%.
RentCafe notes that as the current year progresses, rents are expected to continue rising throughout the country slightly above inflation, as demand for apartments remains strong from all generations of renters. “Going forward, the major issues facing the U.S. housing market will concern population shifts and affordability,” says Doug Ressler, senior analyst at Yardi Matrix. “As affordability becomes a critical issue, renters can expect property managers to attract their interest via unique services or amenities. Property managers will actively target specific segments of renters through amenities and concessions based on the market and submarket demographics.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
