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Some Apartment Markets Are Facing Challenges

Some Apartment Markets Are Facing Challenges National Real Estate Investor (08/15/17) Anderson, Bendix

Apartment rents are beginning to fall in a few overbuilt U.S. downtowns. Experts, though, claim that demand for rental units continues to be so strong so the trend won't last for long. John Affleck, research strategist with the CoStar Group, states, "The story in these markets is the apartment story writ large: the high levels of apartment construction are not enough to house the 1.2 million or so new households formed each year without increased single-family construction." RealPage Inc. adds that apartment rents are still growing, but not as quickly as they had been, in markets nationwide. According to the research firm, rent growth is slowing the most in a handful of cities where developers have opened thousands of new apartments recently. In Houston, for instance, rents dropped by 1.6 percent on average over the last year. Still, the outlook for the Texas city remains strong. By contrast, the rents in New York City are barely growing. Revenue growth was nearly zero over the year that ended in mid-2017. Developers are expected to open 20,000 new apartments in New York City this year, according to RealPage -- up nearly 25 percent from a year earlier.

In Nashville, meanwhile, developers are now opening new apartments at a rate of nearly 8,000 a year. That's nearly twice the rate of completions in 2016 and the year before, reports RealPage. Rents still grew by 3.4 percent in Nashville over the 12 months ended at mid-year, almost double the overall rate of inflation. However, it's less than half the rent growth compared with a year earlier when developers opened half as many new apartments. To be sure, not all apartment markets are cooling off. The markets where the pace of rent growth sped up the most include Colorado Springs, Colo.; Tacoma, Wash. and Sacramento. Effective rents grew on average between 5 percent and 8 percent in these markets over the year that ended June 30. These cities have little in common, except they are located in close proximity to markets like Denver, Seattle, and San Francisco with very expensive apartment rents.