Apartments at all price levels nationwide are experiencing downward pressure on rents as nearly 1 million new units have been delivered since the beginning of 2023, surpassing the largest volumes seen in more than 50 years.
In submarkets in the nation’s 150 largest apartment markets with the largest inventory growth for the year ending third quarter 2024, median pricing premiums were the narrowest between asset classes, according to a RealPage analysis. In submarkets with less than 1% inventory growth for the year, Class A units had the largest median premium of 22% during the third quarter. Meanwhile, submarkets with more than 10% growth annually saw the smallest Class A premiums of under 15%, according to RealPage.
“In other words, it is 7% more expensive for a Class B renter in a low-supply submarket to move into a luxury Class A unit today compared to one in a high-supply submarket,” according to the analysis.
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Among the 700 submarkets within the nation’s 50 largest apartment markets, nearly two-thirds had inventory growth of 1% or less year over year, while on the opposite end of the spectrum, 21% of the top 50 submarkets expanded apartment inventory more than 5% from last year.
Detroit’s Royal Oak/Oak Park submarket had the largest Class A premium during the third quarter among low-supply submarkets. With annual inventory growth of just 0.7%, Class A units in the submarket averaged 66% greater than Class B prices. With no new supply in the past year, Pittsburgh’s Westmoreland/Fayette submarket came in second with Class A rents exceeding Class B rents by 61%.
The largest gap between Class B and Class C rents occurred in four of New York’s Manhattan submarkets. Rent premiums for Class B units compared with Class C units ranged from 83% in Midtown West to more than 108% in Midtown East. Outside of New York, San Diego’s La Jolla/University City submarket showed the largest pricing premium for class B units at 64.5%.
In major submarkets with inventory growth of greater than 10% annually, the premiums for Class A and B units were smaller. Indianapolis submarket Greenwood/Johnson County registered the largest pricing delta for both Class A and Class B units of 29.1% and 25.1%, respectively. In Texas, North Central Austin ranked second at 27.7% and East Austin ranked third with 26.9% Class A premiums. Houston’s Rosenberg/Richmond submarket ranked second in Class B rent premiums, with a delta of 24.9% in the third quarter, said RealPage.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
