Though Apartment Demand Is High, Peak Rents Are Declining In Some Markets
As we progress into the second half of the year, industry experts say apartment vacancy rates continue to drop, diving to their lowest levels since 1985. A recent report by apartment listings site Abodo says growing demand for rental properties is the cause.
Nationally, only 7% of housing rental units were available in Q1, with markets in the Northeast and West being the tightest. In California—which Abodo ranked as one of the most expensive states to live in June—vacancy rates were 4.1% in Q1. Oakland saw an 11% decline in vacancy, although San Diego rose by 5%. Then up toward the Midwest, Milwaukee vacancies dropped to 4.1%, and it saw a 15% rent hike, the highest in the nation.
“With homeownership rates falling, it makes sense for landlords to continue to raise pricing on their rental units, especially in markets with tighter inventory,” Abodo's Sam Radbil tells Bisnow.
But overbuilding is starting to take its toll on pipelines and rents. Builders have been concentrating on fast-growing urban markets, attempting to attract Millennial renters with trendy amenities like rooftop pools and fire pits. As rents begin to decline, developers are becoming more selective in where to build. In S.F., where apartment construction is at a record high, rents rose 2.6% in Q2 compared to a 9.6% climb a year ago, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate report. Denver and Houston had a drop in Q2 rents.
"With construction at its highest level since the 1980s, we think that a steady decline in rent prices might be on the way,” Radbil says. “As we've seen in the past, as vacancy rates increase and more rental units become available, prices should begin to decrease."