Even as the rental market entered its traditionally slow season, apartment rent and occupancy rate set new records.
Rental Market “Actually Stronger” than For-Sale Market Right Now
At a time when rent growth and occupancy traditionally cool down as we head into the winter months, apartment rent grow and occupancy rates hit record highs in November.
Apartment occupancy hit a high of 97.5% in November, according to RealPage. This 97.5% translates into the occupancy rate being up about 250 basis points from the long-term norm of about 95% over the past 30 years.
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The average increase in asking rents for new move-in leases saw an uptick of +13.9% y/y in November. The month-to-month increase was +0.6%. Renewal lease rent growth typically slows down when there’s an occupancy turnover however that renewal lease rent growth has been growing +8% even during this late time of the year.
Renter Demand Strong
According to Greg Willett, chief economist with RealPage, “The demand from renters is really strong, especially for the luxury product. As the economy has recovered, we’ve done a better job in high-paying employment than we have in the lower paying jobs.”
Demand in the rental market continues to outstrip supply, just as in the for-sale market.
John Burns, CEO of John Burns Real Estate Consulting, said, “The rental market is actually stronger than the for-sale market right now. The rent increases are something like I’ve never seen before in my life, so we are definitely pulling forward a lot of household formation.”
Drivers of Rental Demand
High for-sale prices, up nearly +20% y/y, are driving rental demand. In more and more markets, owner-occupant homebuyers are being driven out of the for-sale market by all-cash investors.
Older homeowners who want to take advantage of high for-sale prices are choosing to cash out and then moving into luxury rentals which, in turn, takes up more supply and continues to inflate rental prices.
Also, fewer people are choosing to share apartments with roommates since the onslaught of the pandemic.
Burns said, “With this work-from-home and the stimulus and everything else – not enough WiFi, too noisy in the house – a lot of people are living on their own or they had two roommates and now they’ve got one, and that’s been the big reason for the surge in the apartment demand.”
Regional Rent Growth
- West Palm Beach, Tampa and Phoenix – annual gains of 26% to 28%
- Austin, Fort Lauderdale, Las Vegas, Jacksonville, Atlanta, Salt Lake City, Raleigh/Durham, Miami – annual gains of +20%
- Midwest rent growth is weakest with Minneapolis seeing the smallest annual rent increase of just +4%
Manhattan Rents See Record Surge
Even though offices in NYC are “sparsely populated,” according to Bloomberg, an almost fevered demand for NYC apartments sent Manhattan rents sky-high in November. The median rent jumped +23% y/y to $3,369 according to the latest report from Miller Samuel and Douglas Elliman Real Estate.
Despite rents increasing the most in a decade, the median rent is still below -3.8% NYC’s rents in November 2019, pre-pandemic.
According to Hal Gavzie, executive manager of leasing for Douglas Elliman, “They (renters) just want to get back into the city – they’ve been away long enough.”
Fancier apartments in Manhattan’s doorman buildings saw rents jump +27% y/y to $4,108, higher than the November median of $4,016. Apartments without doormen saw median rents of $2,584 in November, a good -12% lower than two years earlier, pre-pandemic.
Thanks to CNBC and Bloomberg
