Which Markets Spearhead Apartment Growth?

Technology-driven markets in the Western United States continue to lead rental growth to new highs.
Paul Fiorilla, Yardi

Paul Fiorilla, Yardi

In the 12 months ending July, the average U.S. apartment rent rose 6.5 percent to $1,155, according to the July 2015 edition of Matrix Monthly, a report on U.S. multi-family market trends from Yardi. That figure, according to the report, which was released today, marks the highest rental rate in the current market cycle.
Technology-driven markets in the Western United States continued to lead rental growth, with Portland, Ore., foremost at 11.0 percent. The second- through fifth-highest gains were seen in San Francisco (10.5 percent), Denver (9.3 percent), Sacramento (8.5 percent) and Seattle (8.5 percent), respectively.

Growth is strong across all 30 markets featured in the Matrix Monthly, with only five metro areas experiencing less than a 4 percent increase year over year.
“We’re continuing to see strong demand because of economic and demographic factors,” Paul Fiorilla, associate director of research at Yardi, told Commercial Property Executive. Among the former, he highlighted steady job growth, especially in large urban markets, totaling more than 2 million jobs a year. Fiorilla also pointed out that the two segments with the best job growth, professional and business services and educational and health services, generally pay well.

On the demographic side, he said, we have both Baby Boomers shifting from homes to apartments and Millennials moving into apartments as they go out on their own and form new households.

The current surge in rents, the report suggests, appears to be related more to demand than to supply. Metro areas “with job growth above the national average tend to be among the leaders in rent growth, even if supply growth is above-trend,” it stated.

“The multi-family rent increase has legs,” Fiorilla concluded. Though it won’t continue indefinitely, “it shows no signs of abating any time soon.”
Matrix Monthly is a monthly survey of apartment owners in the 101 U.S. markets covered by the Yardi Matrix business unit (formerly Pierce-Eislen).

Interestingly, the report came hard on the heels of the release Tuesday of the latest U.S. Census Bureau report on the nationwide homeownership rate, which fell to 63.4 percent in the second quarter. That figure is down from 63.7 percent in the first quarter and from 64.7 percent in the same quarter of 2014. It’s also the lowest homeownership rate since 1967.

“Homeownership peaked at 69.2 percent at the end of 2004, when the housing market was in the midst of an epic boom,” according to the Census Bureau, which noted that the 50-year average is 65.3 percent.