Excess apartment stock drives rents down in top US markets

Dive Brief:

Changes in rent prices among the country’s top 100 rental markets proved inconsistent in March, with half reporting increases and the rest experiencing a decline, according to the Zumper National Rent Index. Small and midsize markets experienced the same trend.
Nationwide, the index fell less than 1% to $1,142 for a one-bedroom unit and rose 0.5% to $1,353 for a two-bedroom unit.
Cities experiencing a drop in rents from February to March include San Francisco (down 1.2% to $3,270), although it’s still the most expensive rental market in the U.S. It was joined by Chicago, Nashville, TN, and San Antonio, TX, in experiencing a decline. Rents rose in Seattle, Houston and Long Beach, CA.

Dive Insight:

One common factor among major metros that saw rental prices drop is an oversupply of inventory in key neighborhoods — a boon for renters who feared continued price increases would price them out of the market. For developers, however, the additional stock means lower rents and difficulty getting financing to put new projects in the ground.

Chicago is one city experiencing an excess of multifamily capacity as strong employment activity in the professional sectors draws residents and businesses to its downtown. (Meanwhile, the city is losing population.) There, a host of projects are underway that promise luxury units and comparable amenities.

Ground broke earlier this year on a 479-unit, 56-story apartment tower in the city’s South Loop neighborhood. The high-end project is expected to be topped off with four penthouse duplexes. Also in the South Loop is the massive Chicago Riverline project, which will deliver 3,600 units in a mix of high-rises, condominiums, townhouses and rental apartments to that district. Elsewhere in the city, Studio Gang’s 98-story Vista Tower is rising and will deliver 406 luxury condominium units.

All that activity and more has observers forecasting a 150% increase in inventory levels there from 2005 to 2018. A tight lending environment is preventing many from being sold outright, instead crowding the upper tiers of the rental market and pushing prices lower.

New York City is also seeing activity in its high-end rental market slow. According to Zumper, rents for one- and two-bedroom units there were down 10% year-over-year in March. Meanwhile, high-earning renters are leaving Manhattan for the emerging luxury rental markets in other boroughs, including Brooklyn and Queens, which is causing rents there to rise.

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