Apartment rents on verge of declining due to massive supply

Condominium rents have been cooling off sharply for a number of months, and so they seem like they’re about to go detrimental in contrast with a yr in the past.

Rents in August had been simply 0.28% larger than August 2022, in line with actual property tech platform RealPage. Examine that to a yr in the past, when rents had been posting 11% annual development. Except a really transient drop throughout the Covid lockdowns, rents haven’t proven detrimental annual development in nicely over a decade. Once they did, it was as a consequence of a recession hitting demand.

That isn’t the case now. Condominium occupancies nationally are at a reasonably wholesome 94%, which is true alongside historic norms. High mortgage rates mixed with high home prices and tight supply have stored extra would-be consumers within the rental market. The difficulty as a substitute is only a large quantity of condo provide.

The variety of new items being constructed is at a 50-year excessive, with greater than 460,000 being accomplished this yr alone. Over 1,000,000 new items have been constructed prior to now three years. That is a document, and far of that provide is on the upper finish. Renters have extra choices, so landlords have much less pricing energy as turnover will increase.

Whereas rents nationally have not gone detrimental but, they’ve in a number of native markets. Austin, Texas (-4.9%), Phoenix (-4.9%), Las Vegas (4.7%), Atlanta (-3.7%) and Jacksonville, Florida (-3.4%) are seeing the largest drops.

The Midwest and Northeast areas proceed to see very robust hire will increase. One exception is New York, the place rents had been up simply 1.9% yearly as important provide comes available on the market.

Trying forward, provide ought to stay excessive by subsequent yr, which is able to push rents decrease probably by 2025. New building, nevertheless, has dropped sharply this yr due to financing and different challenges, so there needs to be far much less provide going into 2026, giving rents an opportunity to make up some floor.