SANTA BARBARA, CA—The multifamily sector evidently hasn’t gotten the memo that growth in fundamentals is supposed to be on the verge of losing steam. Yardi’s latest Matrix Monthly report says that average rents hit a record high of $1,150/month in June, up 6.3% year over year. The report is based on a monthly survey of apartment owners in the 100 US markets covered by Yardi’s Pierce-Eislen business unit.
“Rent growth, which has been above-trend for the last couple of years, actually has accelerated,” according to the Matrix Monthly report. “The average national rent grew 1.3% month-over-month and is up 2.9% over the past three months,” which compares favorably to 1.1% and 2.3% in 2014, respectively.
Yardi points out that the rapid growth is seasonal to some extent, since multifamily rents tend to increase more in the spring. However, the firm notes that the one-month and three-month increases recorded for June represent the fastest rent growth in several years.
Moreover, the ongoing drivers of rent growth cited by Yardi are macroeconomic rather than seasonal. The firm cites “job growth, pent-up demand from millennials and favorable demographic factors” as catalysts.
The West Coast and Sunbelt markets have led the way in rent growth recently, and this trend persists through the latest Matrix Monthly. Portland, OR (up 15.1%), Denver (up 12.4%), San Francisco (11.6%) and Sacramento (11%) led the growth on a year-over-year basis, while Jacksonville (13.2%) and Atlanta (9.0%) are among the southern markets with explosive growth, Yardi says.
And while the Northeast, Mid-Atlantic and Midwest continue to trail on a relative basis, rent growth nonetheless is strong across the country. In the latest Matrix Monthly, rents trail the long-term average in only a handful of markets, and only six failed to achieve Y-O-Y growth of 4% or better: Richmond (1.4%), Baltimore (2.5%), Washington DC (2.7%), Philadelphia (3.0%) Albuquerque (3.2%) and Kansas City (3.5%).
Three markets underperformed Yardi’s expectations for year-to-date growth: Austin (6.5% forecast, up 4.7%), Houston (7.5% forecast, up 6.1% year-over-year) and Nashville (6.0% forecast, up 5.0%). Conversely, Yardi says it underestimated the strength of some markets in YTD growth, particularly Jacksonville (4.0% forecast, up 10.8%), the Research Triangle (4.0% forecast, up 5.7% year-over-year) and Orlando (6.0% forecast, up 7.7%). Three markets achieved YTD rent growth of 10% or better as of June: San Francisco (12%0, Portland, OR (11.7%) and Denver (11.6%).
On a trailing 12-month basis, rents rose by 4.9% nationally in Yardi Matrix’s survey. On an asset class basis, rent growth was led by higher-end lifestyle properties, which rose by 5.5% year-over-year compared to 4.7% for “rent by necessity” properties.
Yardi says that while the T12-month metric smoothes out seasonal increases, the survey shows that growth is broad-based. “Half of the 30 metros in our ranking saw rent growth of 6.0% or more and only three grew by less than 2%,” according to the report.
And the rent party doesn’t appear to be winding down any time soon. “Recent strong rent growth combined with the long-term absorption trend indicates that gains are likely to intensify in the second half,” according to Yardi. “We expect that robust employment gains, combined with above-trend household formations as millennials move out of parents’ homes, will produce enough demand to absorb near-term supply.”