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The Five Markets with Outsized Apartment Rent Growth
Apartment rents are growing fastest in smaller cities and secondary markets, far from the mega-cities where developers have focused most of their attention in recent years.
“Decent job growth, combined with very low new supply levels, is a recipe for high rental growth rates,” says Louis Rosenthal, analyst for data firm Axiometrics.
Here we look at secondary markets with the highest rent growth for apartment properties.
The California state capitol has the strongest rent growth in the country, according to several top research firms. The estimates for the growth in effective rents range from 8.8 percent according to Axiometrics to 9.7 percent according to MPF Research over the year ending in the first quarter 2017.
“Existing product is jam-packed full with occupancy at 97.2 percent, and there’s not much construction activity,” says Greg Willett, chief economist for MPF. Deliveries in the past year were limited to about 600 units, and only 2,200 units are on the way.
Seattle is one of the only top cities for new development that is also a top city for rent growth. Estimates for effective rent growth here range from 8.3 percent, an estimate from MPF Research, to 4.9 percent, according to Axiometrics, over the year ending in the first quarter 2017.
In 2016, developers added nearly 11,000 new apartments to the markets in Seattle. That’s nearly twice the historical average of 6,200 new apartment units per year, according to Axiometrics. However, demand has kept pace. “There is a lot of growth in the tech industry in Seattle and rents are not as high there as in San Francisco,” says Barbara Byrne Denham, senior economist in the research and economics department at Reis Inc.
The estimates for growth in effective rents range from 7.8 percent, according to MPF Research, to 6.0 percent, according to Axiometrics.
“Like Sacramento, the Inland Empire is a late-recovery economy where the existing apartment stock is now full again, but construction has not yet kicked into high gear,” says MPF’s Willett.
Strong employment growth and limited new development have pushed effective apartment rents upwards consistently at a rate of more the 6.0 percent a year since 2015. Effective rents grew an average of 6.5 percent over the year that ended in the first quarter, according to MPF Research.
However, “construction starts are accelerating now, so today’s rent growth momentum may prove difficult to sustain,” says Willet.
Developers have been slow to build new apartments in Atlanta, since it was badly hurt by the real estate crash.
But now Atlanta’s economy is roaring ahead. “The employment market has been very strong there,” says Reis’ Denham.
Annual employment growth in Atlanta has just hit 100,000 jobs, and that expansion is creating lots of demand for apartments. Effective rents grew by an average of 6.2 percent over the year that ended in the first quarter, according to MPF Research.
Source: nreionline.com
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