Should Apartment Owners Plan for Rent Decreases?
The U.S. has almost a million apartment units under construction – 3 times more than it did 20 years ago. In May, though, rents were still up 2.6% year-to-year.
NEW YORK – More than 950,000 multifamily units are currently under construction in the United States, according to the U.S. Census Bureau – three times the number from two decades ago.
That means the number of new rental apartments opening over the next 18 months is poised to decrease profits for apartment owners, who are already contending with slower or declining rent growth in many cities – and those are the most exposed to the increase in new supply, according to a May report from Green Street.
Many investors are already looking toward the year ahead, expecting new leases to reflect much lower rent increases as competition from new buildings becomes more of a factor.
The FTSE Nareit Equity Apartments index is up about 5% year to date, compared with a 12% gain for the S&P 500. The average asking rent for a market-rate apartment was $1,716 this May, a 2.6% increase from the same month a year before, according to data provider Yardi Matrix, compared with the 15% annual increase seen in the first quarter of 2022.
The recent softness shows that many tenants have a limit for how much they can pay in rent, while others might be spending less for fear of a slowing economy and the prospect of more job losses. Rents are now falling in some Sunbelt cities with housing markets that boomed during the pandemic.
Beyond new apartment supply, slowing job growth in these and other cities would also portend lagging rents in the near future, analysts said.
Source: Wall Street Journal (06/05/23) Parker, Will
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