Multifamily’s average asking rent for May rose $7 to $1,716, up $18 or 1% since January of this year, while year over year growth decelerated by 2.6%, down 70 basis points from the prior month and the lowest level in more than a year, according to Yardi Matrix.
It attributes the slowdown in rent increases to a number of metros having negative YOY growth in May: Las Vegas was down 2.8%, Phoenix 2.6%, Austin 1%, Seattle .9%, San Francisco, Atlanta and Sacramento all 0.4% and Orange County, Calif., 2%.
Slowing household formation, competition from new deliveries, lack of affordable units and less demand as companies lay off workers are also attributed to the weaker rent growth. Such factors all erode consumer confidence.
Another discouraging data point for the industry: renewal rates appear to be dropping. Growth for this segment has been decelerating as residents have more choices to up and move as occupancy rates dip and more units are available. Rents for this segment rose 8.2% YOY nationally in March but were down from 9.4% in the prior month. Among the metros to see drops between those two months were Los Angeles, San Francisco, Chicago and Austin. New York demand remained stable.
But different segments in the multifamily category reveal different results, offering a greater sense of optimism in the short term. For example, of the top 30 metros that have above national average rent growth numbers, seven of the top eight are in the Midwest or markets that didn’t experience large post-pandemic rent gains.
Also, optimism still abounds in the Lifestyle, Rent-by-Necessity and Build-to-Rent segments. In these categories, there’s still optimism for multiple reasons. Renting remains less costly than homeownership, housing inventory still remains low and high-end lifestyle properties posted 0.4% increases in May and 0.3% on a sequential three-month basis. Growth also occurred in the Renter-by-Necessity (RBN) and Lifestyle segments with Lifestyle outperforming RBN. The reason, the report said, was the resurgence of that category due to the scarcity of housing sales, which prevents high-income renters from buying and moving. Lifestyle rents increased most in Seattle at 1.4%, but also Denver at 1.1% and Nashville, Chicago, New York and San Jose each at 1%.
In the single-family Build-to-Rent niche, asking rents went up $7 to $2,100 in May but YOY growth declined by 40 basis points. Occupancy rates remained unchanged at 95.6%, which was down 1% point from the same month a year ago. Where rents decelerated in this category included Miami at 4.5%, Phoenix at 2.6%, Austin at 0.3% and Raleigh at 1.2%. The fewer number of homes available to buy helped this category still hold appeal for those seeking the privacy and indoor and outdoor space of a single-family home versus an apartment; many also see the advantage of almost maintenance-free living.