Apartment rents in the U.S. grew at a quicker pace in the second quarter as tenant demand rose faster than the growing supply of multifamily properties.
Rents after any discounts such as a free month climbed 3.4% to an average $1,099 a month from $1,064 a year earlier, property-research firm Reis (NASDAQ:REIS) said in its quarterly report. Effective rents had gained 3.2% in the first quarter.
A tight supply of homes for sale and an improving job market are allowing apartment landlords to raise rents, even as developers race to meet demand by adding more properties to the market. A total of 33,210 new apartment units were completed last quarter, up from 29,990 a year earlier, Reis said.
“Landlords continue to extract whatever rent increases they can out of their tenants,” noted Ryan Severino, senior economist at Reis.
The apartment vacancy rate, which has hovered at a decade low for more than a year, was 4.1%, unchanged from the first quarter and down from 4.3% a year earlier, Reis said. Vacancies were last lower in 2001, when they reached 3.9%.
All 79 of the primary markets measured by Reis had gains in effective rents, the first time that’s happened since the last recession, Severino said. San Francisco led the U.S. in effective rent growth, with a 7.1% increase from a year earlier, Reis said. San Jose, Calif., was second at 6.7%, and Seattle third at 6.2%.
“Even in projects finished just a year or so ago, higher rents are being realized when leases turn over, despite the fact that there’s competition from additional brand new developments just entering the market,” Greg Willett, vice president at MPF Research, a unit of the research firm RealPage (NASDAQ:RP), said in a report.
Reis estimates effective rents will rise about 3.5% this year, which would be the top gain since 2007.
“There is more supply on the way, but the apartment market is merely returning to a more ‘normal’ level of construction,” Jay Denton, vice president of research at apartment-research firm Axiometrics, wrote in a separate report.
It said on a quarterly basis, U.S. multifamily rents grew at their fastest pace since 2000.
The proliferation of younger renters and a dropping homeownership rate “continue to play in the favor of apartments,” Denton said. The U.S. homeownership rate fell to 64.8% in the first quarter, the lowest in 19 years, Census Bureau data show.
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