Apartment Market Slumps as Supply Surges
Apartment Market Slumps as Supply Surges
David Paul Morris/Bloomberg via Getty Images
Apartment landlords across the U.S. struggled through a tough first quarter as a slowdown in the rental market grew worse.
Rents in the first quarter declined or were flat in 28 of the 79 metropolitan areas covered by Reis Inc., including New York, Portland, Denver, Boston, Los Angeles and Washington, D.C. That was up from 14 markets with lower or flat rents in the fourth quarter.
Average rents nationwide, meanwhile, increased 3.1% in the first quarter compared with a year earlier, down from the more than 5% growth they posted a year ago, according to Reis.
Apartment occupancy declined to 94.5% from 95.1% at the end of the third quarter as supply increased, according to separate data from apartment tracker Axiometrics Inc. released Thursday. Across the U.S., apartment developers delivered 100,000 more new units than were leased in the quarter.
“We didn’t get a lot of demand and at the same time we got a lot of supply,” said Greg Willett, chief economist at RealPage Inc., which recently acquired Axiometrics.
Mr. Willett said the mismatch is especially pronounced at the high end, where rent growth is flat or negative in most metro areas.
The country’s two priciest markets were particularly sluggish. Rents in San Francisco fell 1.3% in the first quarter compared with a year earlier, while New York rents dipped 0.6%, according to Reis.
“To some degree it looks like operators have panicked in the Bay Area and New York,” Mr. Willett said.
Real-estate agents in the Bay Area said tenants renewing leases there have been able to convince their landlords not to raise rents. Those moving into newer buildings often receive two months free rent and six months to a year of free parking—incentives potentially worth thousands of dollars.
“There are very good deals to be had,” said Ron Stern, chief executive of Bay Rentals.
Houston also has been sluggish, as supply swelled and the economy softened on the energy-market slump.
“Houston, you are experiencing concessions or just flat-out adjustments of the effective rent,” said Brad Taylor, managing partner for the central region at JPI, an Irving, Texas-based real-estate developer. “The amount that someone has been writing their rent check for has been dropping.”
Analysts had expected that 2017 would mark a significant slowdown for the rental market, which had already shown signs of softening in New York, San Francisco and a few other major cities. This quarter’s data show that the predictions are coming true.
Even tougher times might be ahead. The winter months are typically slow, but as demand is expected to pick up this spring it is likely to be overwhelmed by increasing supply. The average number of new apartments finished in each of the next few quarters is expected to climb to 102,000 from 82,000 in late 2016 and early 2017, according to Axiometrics.
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