Apartment rental rates continue to grow
After some deceleration in multifamily rent growth earlier this year, a recent report indicates that apartment rental rates resumed impressive gains in the third quarter. According to the report from Yardi Matrix, year-over-year rent growth in October was 3.2% nationwide in 30 major markets, increasing to an all-time high average of $1,476.
There are many factors which continue to drive demand for multifamily units, including low unemployment, demographic changes, household creation, and a shortage of entry-level housing. Due to these factors, the Yardi report concludes that in the near term rent growth should remain above the historical long-term average of 2.5% increases year-over-year.
In the Southeast, rents increased faster than the national average as the region continues to benefit from national migratory and demographic trends. For example, several metro areas saw growth well in excess of the national average, including: Raleigh (5.1%), Charlotte (4.8%) and Nashville (4.6%). Rents increased in these markets despite significant increases in supply as absorption rates remain high.
In the Atlanta market, rental increases were near the national average for all multifamily asset classes and well above average (over 6%) in the “Renter-by-Necessity” asset class. Job creation in metro Atlanta remains above the national rate helping to sustain apartment demand. In particular, Class C assets are benefiting from vacancies near all-time lows.
This recent performance continues a long-term trend with average apartment rents up 32% over the past eight years.
Strong rent growth has, however, created a financial burden on many households and exacerbated problems with affordability. This has created immense political pressure to take action and has led to recent rent-control legislation. In addition to legislation recently passed in Oregon, New York and California, twelve states are currently considering similar restrictions on rental increases. While housing affordability remains a daunting challenge, rent-control laws tend to limit new supply and worsen the problem in the long term. Accordingly, more innovative solutions will likely be required.
At CLF, we note continued optimism from our multifamily investor clients as trading activity remains robust.
About the Author
Kevin Caiaccio, founder of Caiaccio Law Firm, has more than 25 years of experience practicing commercial real estate law. His cut-through-the-noise mentality encourages clients and colleagues to be selective and focus on big-picture solutions. He believes in fighting for what’s important, and filtering through obstacles that distract.