Rental Markets Continue Strong Amid Economic Slowdown
Rising inflation and interest rates dampen transactions, but annual rent growth remains in the double digits in June.
- At the mid-year point, the national average asking rent growth softened to 13.7% year-over-year, to yet another all-time high average of $1,706; rents gained $73 since the start of the year.
- Household formation is the main driver for rental demand, especially with rising inflation and interest rates, which have dampened transaction activity and kept more residents in the rental markets.
- Lifestyle rents continue to remain slightly above Renter-by-Necessity; occupancy stood at 96% in May, with the rate still on a recovery trend in the larger metros that lost significant population during the pandemic.
- The SFR sector mirrors the multifamily industry, with rents up just 11.8% year-over-year to an all-time high od $2,071; occupancy lost just 10 basis points.
Alongside the Economic Cooldown, Rent Growth Softens, But Remains Elevated
As anticipated, the national multifamily market exhibited signs of dampening in June, when it marked the fourth straight month of rent deceleration. Even so, it performed remarkably well, with average asking rent up 13.7% year-over-year, or another $19, to $1,706. This translates into a 3.3% increase during the second quarter and 5.7% since the start of the year. Nationally, asking rents increased $73 year-to-date.
Florida markets maintained leading positions in year-over-year increases, with Orlando (24.0%), Miami (23.4%) and Tampa (20.3%) on top. Bottom ranking metros kept a steady recovery pace, too: San Francisco (9.7%), Baltimore (9.4%) and the Twin Cities (5.1%). Asking rents increased 10% or more in 25 of the top 30 markets.
With the economy on a softening trend, rent growth will be sustained by the robust labor market, albeit at a slower pace. In addition, inflation and rising interest rates are already hitting the brake on investments, keeping more households in the rental markets.
Occupancy Improves in Gateway Markets, Slides in High-Growth Metros; Lifestyle Maintains Lead over RBN
Overall, occupancy stood at 96% in May, with the year-over-year rate declining in 11 metros led by Las Vegas (-1.6%), Phoenix (-1.1%), Sacramento (-1.0%) and the Inland Empire (-0.8%), pointing to a weakening in in-migration, which could eventually lead to a drop in rent growth. Best performing metros in occupancy were San Jose (2.0%), New York (1.5%) and Chicago (1.4%).
On a monthly basis, national asking rents rose 1.1%, on par with May. All metros reported rent increases, with San Jose (2.1%), Raleigh (1.9%) and Seattle (1.8%) leading the ranking. The lowest increases month-over-month were in the Twin Cities, Phoenix and New York (each 0.6%). Overall, 19 of Yardi’s 30 metros registered gains of at least 1.1%.
Lifestyle rents increased 1.2% in June, 10 basis point above Renter-by-Necessity rents. All metros saw rent increases in both property segments. Leaders is increases in both categories were San Jose (2.1% Lifestyle, 1.9% RBN), Raleigh (1.9% Lifestyle, 1.7% RBN), Seattle (1.9% Lifestyle, 1.5% RBN) and Orlando (1.7% Lifestyle, 1.5% RBN).
Demand for SFRs Intensifies
The asking rent for the single-family segment rose 11.8% year-over-year in June, 90 basis points below May. This represents a $23 increase, to an all-time high of $2,071. Increases above the 20% mark were reported in four metros Orlando (46.7%), Miami (25.9%), Nashville (23.0%) and Toledo (22.5%). On a month-over-month basis, asking rents rose 1.1%, on par with multifamily rents. Meanwhile, occupancy decreased just 10 basis points, with eight metros posting increases of at least 10 basis points.
Homeownership becomes harder to attain in an economic environment where inflation and interest rates are rising, and this improves demand for SFRs. This is also altering the demographic of the average SFR tenant, with millennials and blue-collar workers with children and pets making up the majority of the renter demographic.
Download the full Matrix Multifamily National Report-June 2022