Rent growth is moderating, but still outshines historical growth

While rent growth is cooling from its breakneck pace in 2021 and early 2022, it’s still outperforming historical rent growth levels, per a CONTI Capital analysis.

Rents have been bounding upwards at a staggering clip for some months, analysts have said for a while now that this rapid rise could only last for so long. Wages haven’t kept up with rent increases, and more housing and apartment supply is becoming available, even if it isn’t nearly enough to meet demand.

It’s important to keep perspective, though – rent growth is still strong, particularly in the Sun Belt, and it’s strongest for high-end, Class A apartments. These are the assets CONTI focuses on – a Green Street Advisors forecast puts overall rent growth in the U.S. at 3% for 2021, but that rent growth is 5.2% for Class A apartments according to CoStar, and the Sun Belt is projected to see a robust 5.6% growth. CONTI holds the belief that preparing for a moderation in income and economic growth means staying focused on the right markets with the strongest fundamentals.

The table below gives a breakdown of rent growth in our top 20 U.S. apartment markets – how they performed in the second quarter last year, this year, the year-over-year change, the average growth from 2012 to 2019, and how that historical rent growth compares with rent growth this quarter.

Though a slowdown in rent growth is on the horizon, as of this quarter, many of our top markets have accelerated in rent growth. Orlando’s rent growth reached 19% in Q2 of this year while also leading the top 20 markets’ year-over-year growth at 6.2%.

Meanwhile superstar markets like Austin, Tampa and Atlanta have seen slowing growth. Yet when we look at how their current rent growth compares to their historical average, the year-over-year loss is less significant. In fact, it’s hardly a “slowdown” at all. Tampa’s current growth is still 10.8% more rapid than it was in the years prior to the pandemic. Austin’s rent growth this quarter is 9.4% higher than historical averages, and Atlanta’s is 6.5% higher.

The Gateway markets of Los Angeles, Chicago and New York City saw more limited rent growth both last year and this quarter. Though all of the top 20 markets are surpassing their historical growth, Los Angeles, New York City and Chicago’s rate jump is less pronounced. These markets don’t have the same strong growth drivers that are currently present in Sun Belt markets.

On a national level, rent growth is projected to decelerate from a sprint to a trot. This is another reason why strong apartment fundamentals are more important than ever. CONTI believes one of our key advantages is our real-time access to proprietary and third-party data, across hundreds of leading indicators, that allows us to identify high-quality assets in strong markets.