Apartment Execs See More Rent Growth 'Baked In' For 2022

Leading multifamily housing operators are coming off a record-breaking year for apartment absorption and experienced near-spectacular rent growth in many markets.

For 2022, they see rent growth baked into their leases, practically regardless of how the economy and housing demand fluctuates this year.

Moderator John Sebree, Senior Vice President, National Director of Multi Housing Division, Marcus & Millichap; led a discussion on “The Deepening of Investor Appetite” at NMHC’s 2022 Apartment Strategies Conference on Tuesday in Orlando.

Panelists in with Ned Stiker, Senior Managing Partner, Investments and Capital Markets, Cortland; and Bob Garechana, Executive Vice President & Chief Finance Officer, Equity; and Phyllis Klein, Senior Vice President, Capital One Multifamily Finance; and Yetta Tropper, Head of Multifamily Asset Management, PGIM Real Estate PGIM 

Stiker said there is delayed rent growth built into his (and other) portfolios based on leases that are soon to be up for renewals and because those renters signed their leases at much lower rates during the pandemic, rent growth will continue in 2022.

Tropper said she is seeing a 12 percent rise in renewal rates, which is still a touch less than what they are asking for new leases being offered on units with non-renewing residents.

Garechana said his renewal rates and new lease rates are at or approaching double-digits.

Real Page’s Rental Housing Economist Jay Parsons this week reported that renewals have generally grown much slower than new lease rents in this cycle. He said, on average, an existing renter pays about 10% to 11% below market right now.

“More apartment and SFR operators are starting to push up renewal prices, but generally are keeping rates discounted relative to new lease rates,” Parsons said. “True new lease rent growth (trade out) in December was 16%, compared to 9% on renewal. So, there’s still an incentive to stay in place. The renewal offer may look expensive until you shop around and realize you’ve still got a bargain.”

The Emergence of New ‘24/7’ and Tertiary Markets

Garechana said the pandemic opened investors’ eyes about how many other true, “24/7” active markets there are besides those in gateway cities. He mentioned Atlanta, Dallas, Austin and Denver. “Austin is no longer a secondary market, it’s a primary market,” Garechana said. 

Stiker said Sunbelt and Mountain region markets are benefiting from the coastal migration the past year and that within that, there’s a secondary migration to the suburbs and ex-burbs in those markets.

He said the institutionalizing of office space in Austin and Phoenix is another sign that those markets are in favor.

The panel said that the pandemic created a redefining of what is a tertiary market. 

For example, “When you look at the job growth in places like Kansas City, Reno and San Antonio, you can see that more new workforce housing will be built there,” Klein said.

The panel said that there are so many systemic issues related to living in California that need to be resolved – such as pervasive public homelessness – that it has fallen out of favor.

“And yet,” Sebree said, “when we talk to owners in California, they all seem to be doing well.”