Despite New Apartment Supply Glut, Concessions Remain Low, Rent Growth Steady
Two indicators for health in the multi-family market show strength heading into 2018. Fannie Mae’s December Multi-Family Commentary report states that concessions are near historic lows even with a plentiful supply of new apartment deliveries. Concessions have remained below 1% of annual rents for the last two years, well below the 7% peak of 2009. Surprisingly, concessions are lowest in class A properties where the majority of new apartments are being delivered. This suggest strong underlying demand for rentals as demand is keeping pace with new supply.
In a related report from Yardi Matrix and Mary Salmonsen, she finds that although month-over-month rent growth decreased slightly in November, year-over-year rent growth increased to 2.5% nationally. The slight decrease in month-over-month rents is due to seasonality while overall annual rent growth remains steady in the face of strong new apartment supply. Rent growth is highest in the “renter by necessity” demographic at 3.9%. Deliveries of new apartments held back the 1.5% rent growth for the “luxury” demographic. The report also states that occupancy rates are steady at about 95-96%.
Both reports present a case for steady multi-family fundamentals going into 2018. However, they do show that there’s not a lot of room for improvement. Current rent growth is in line with income growth and further increases are unlikely. Strong deliveries of new apartments will continue in 2018 and a slowdown in demand could increase concessions and decrease rent growth and occupancy rates.
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