Apartment rents are growing, but the pace of rent growth has slowed down. In the 12 months through June 30, 2016, apartment rents rose 3.3 percent, according to CBRE U.S. Multifamily MarketView. Although the national rate of apartment rent growth is currently below the average annual rate during the past two expansion cycles (3.9 percent), it is still above the 2.4 percent historical average from 2000 to second quarter 2016, according to CBRE.
Vacancy rates increased slightly in the second quarter 2016. The vacancy rate of 4.4 percent is “still very healthy,” reports CBRE, and the 10 basis point rise year-over-year is “very small.”
Increasing apartment vacancy is starting to drag on rent gains in some major markets. Sacramento registered the highest rate of rent growth (8.9 percent) over the past year, followed by Seattle (8.0 percent), Nashville (7.9 percent) and Phoenix (7.7 percent). With more rent availability, rent prices spike due to the supply-and-demand affect. Year-over-year rent growth in San Francisco, however, has slowed to 2.0 percent in second 2016 from 11.9 percent in the previous year.
Rent growth was considerably higher for garden-style apartment communities (4.2 percent) than for high-rise communities (1.7 percent) on a year-over-year basis. This is not surprising, as the bulk of construction completions have been mid- and high-rise buildings. Similarly, older vintage apartments are currently achieving higher rates of rent appreciation. CBRE reports apartment communities built in the 1980s and 1970s had increases of 4.5 percent and 4.3 percent, respectively, over the past year.
The national apartment vacancy rate inched its way up in second quarter 2016 for the first year-over-year increase since 2009. Based on the second quarter 2016 vacancy report, the markets posting the highest vacancy rates included Oklahoma City (8 percent) with a dozen other markets with vacancy rates of more than 6 percent, including Houston (6.4 percent). The majority of metro markets, however, had slight vacancy declines for the year ending second quarter 2016, while seven had no change.
Larger major markets with the highest declines were Detroit (–90 basis points), Minneapolis (–50 basis points) and Dallas/Fort Worth (–27 basis points). But a sizeable minority of 23 markets had vacancy increases on a year-over-year basis due to either excessive supply or weaker demand. None of those markets, which include Pittsburgh, Houston, Denver, and Portland, Ore., posted year-over-year increases of more than 100 basis points.
If the economy is more robust over the coming year, multifamily rent growth is expected to reach 3.4 percent for the year ending second quarter 2017 — same old, same old.