Apartment Rents Cooling Off as Supply Increases
Apartment rents have been decreasing significantly in recent months and may soon show a negative growth compared to the previous year.
In August, rents were only 0.28% higher than in August 2022, according to real estate tech platform RealPage. This is a drastic change from a year ago when rents were growing at an annual rate of 11%. Apart from a brief drop during the Covid lockdowns, rents have not experienced negative annual growth for over a decade, usually associated with a recession.
However, the current situation is different. National apartment occupancies are at a healthy 94%, which aligns with historical norms. The combination of high mortgage rates, soaring home prices, and limited supply has led more potential buyers to opt for rentals. The main issue now is the surplus of available apartments.
This year has seen the construction of a record-breaking number of new units, with over 460,000 completed and over a million built in the past three years. Most of this supply caters to the higher-end market. With more options available, landlords have less pricing power as turnover increases.
While national rents have not turned negative yet, several local markets have experienced a decline. Cities such as Austin, Texas (-4.9%), Phoenix (-4.9%), Las Vegas (4.7%), Atlanta (-3.7%), and Jacksonville, Florida (-3.4%) have witnessed the biggest drops.
However, the Midwest and Northeast regions continue to see significant rent increases, except for New York where rents have only risen by 1.9% annually due to a significant influx of supply in the market.
Looking ahead, the supply of apartments is expected to remain high throughout next year, potentially pushing rents lower until 2025. However, new construction has declined this year due to financing and other challenges. This decrease in supply should continue into 2026, allowing rents to recover some ground.
