May 2021’s rent increase of 0.88% compared to April was the largest month-to-month average jump since Yardi Matrix started collecting rent data.
That all-time high comes after April posted the third-highest increase recorded. While the next couple of months should continue to post strong numbers, Yardi expects seasonal pressures to weigh on growth by the end of the year. Still, many metros could see new all-time rent growth highs in 2021.
Ultimately, many of those gains will just be recouping ground lost in 2020. Yardi says that Reno, the Tri-Cities, Macon, Harrisburg and Omaha showed significant upward revisions in May. It expects these cities will be among the top performers for 2021. Among larger cities, Phoenix will see double-digit growth. Suburban Atlanta, Tampa, Las Vegas, Portland, Austin and several others should post rent growth higher than 5% year-over-year.
While those smaller and Sunbelt metros are flourishing, there are still challenges in gateway cities, which were hit the hardest during the pandemic. Nevertheless, Yardi expects those metros to post modest gains this year, followed by an acceleration next year. “Changing work-from-home policies in Big Tech and Finance will help shape the recoveries in places like the Bay Area, Seattle and New York City,” according to Yardi.
In a recent video, John Chang, senior vice president and director of research services at Marcus & Millichap, pointed out that rents are falling in San Francisco (-9.5%), Boston (-8.3%), Oakland (-7%), Seattle (-6.1%) and Chicago (-5.7%).
However, he also sees growth potential in these markets.
“Just because a market took it on the chin during the pandemic doesn’t mean these cities should be counted out,” Chang says. “The post-COVID recovery could be very swift in some of these cities.”
Job Growth, Inflation Projections
Still, there are questions surrounding job growth after lower-than-expected jobs numbers recently. Yardi also says inflation is also becoming a concern, though organizations are building it into their projections. “Expectation of inflation begets inflation by altering consumer spending patterns as it appears more attractive to consume now rather than later,” according to Yardi. “What should be transitory inflation in certain sectors due to logistics and pandemic-related supply-chain issues is now threatening to be much broader and could have a real impact on purchasing power, which would limit the ability to push further rent increases.”