New Apartment Leasing Stalls More than Expected in Q3

It is football season, come to think of it, and apartment operators are going to need a fourth-quarter rally to offset its mostly poor performance in the third quarter, based on RealPage date released on Tuesday.

There was negative demand, which means that the number of renters moving out of apartments topped the number moving in.

“Piling on” to the situation, leasing activity is typically slowest in the fourth quarter. Apartment demand last registered negative over a 12-month period in 2009, according to RealPage.

Effective asking rents – which have been growing at a much slower pace in 2022 compared to 2021 – fell month-over-month (- 0.2%) in September for the first time since December 2020. RealPage said that decline marks “return-to-normal seasonal pricing” for that period.

Month-over-month effective asking rents continue to drop back in 2022. RealPage reported that asking rents registered well below 2021 every month since April. Additionally, year-over-year rent growth has cooled from a peak of 15.7% in March to 9% in September, the first single-digit number since summer 2021.

Coast to Coast, Peak Rents Are in Rearview Mirror

Carl Whitaker, senior director of research and analysis at RealPage, said in prepared remarks, “Peak rent growth is clearly in the rearview mirror. That’s true coast to coast. And with apartment supply set to start increasing, it’s unlikely we’ll see rents re-accelerate even as demand returns.”

Consumer confidence has fallen due to soft leasing numbers coupled with weak home sales, and “when people are uncertain, human nature is to go into ‘wait-and-see’ mode,” according to Jay Parsons, head of economics and industry principals for RealPage.

In the backfield, household formation – which drove the 2021 housing surge – appears to have frozen earlier this year, RealPage said.

While looking downfield, with more than 917,000 units under way, apartment construction has reached 40-year highs and completions are on track to peak in the second half of 2023, “with the vast majority competing for higher-income renters at rent levels well above the market norms,” RealPage said.

In the Long Run, Vacancies Will Fill Up

Parsons said the country is structurally undersupplied, “with vacancy rates stubbornly low even long before COVID. Many of these new projects will likely face prolonged lease-up periods but in the long run, they’ll fill up.”

Apartment demand in Q3 lost yardage in 119 of the nation’s 150 largest metro area with Nashville being the biggest exception.

It led the league with 1,473 units absorbed – more than double the second-best market (Charleston at 656 units).

“However, even in Nashville, vacancy ticked up due to even more supply than demand,” RealPage reported.