Apartment Rent Growth Ticks Up Slightly in July as US Multifamily Demand Stays Strong

[Sanjeev Advani]

In July, the U.S. apartment market witnessed a slight uptick in rent growth, reflecting robust demand that has persisted throughout the summer. According to the latest data, annual asking rents for apartments across the nation increased by 10 basis points, bringing the average growth rate to 1.2%. This rise underscores the continued strength of the multifamily sector, with over 60,000 units absorbed during the month, setting the stage for a potentially record-breaking third quarter.

Midwest and Northeast Markets Lead the Way

Louisville, Kentucky, continues to dominate the multifamily market, leading the top 50 U.S. markets with a year-over-year asking rent increase of 4.3% at the end of July. The Midwest and Northeast regions have shown consistent growth, driven by balanced supply-demand dynamics. These regions have maintained a strong rental market thanks to stable demand and controlled new construction.

San Jose and San Francisco Emerge as Surprising Leaders

In a surprising twist, San Jose, California, posted one of the most significant jumps in apartment rent growth during July, climbing from 2.8% to 3.4%. This 60 basis point increase is particularly notable given that just a year ago, San Jose was grappling with rent declines. The city's resurgence can be attributed to a combination of tapering construction on new units and a steady increase in demand, pushing rent growth above its pre-pandemic average of 3%.

Similarly, San Francisco experienced a dramatic turnaround in July, with apartment rents jumping from 1% in June to 2% at the end of the month. This marks a significant recovery for a market that spent much of 2023 in negative rent growth territory. The steady demand for apartments in San Francisco, coupled with a declining vacancy rate—from 10.8% at the end of 2020 to 6.2% today—has driven this positive shift.

Challenges in the Sun Belt

While the Midwest, Northeast, and parts of California show strong rent growth, markets in the Sun Belt face challenges. Austin, Texas, saw the most significant decline, with apartment rents falling by 5.1% over the past 12 months. Other Sun Belt cities, including Raleigh, North Carolina; Jacksonville, Florida; Phoenix; and Atlanta, also posted rent losses ranging from 2.8% to 1.9%. These markets are struggling with supply-demand imbalances, particularly as new construction outpaces demand.

Overall, the U.S. multifamily market remains resilient, with certain regions experiencing robust rent growth while others face ongoing challenges. As we move deeper into the third quarter, it will be interesting to see how these trends evolve and whether the strong demand can sustain the positive momentum in rent growth across the country.

[Bradley Buxton]

@Sanjeev Advani

Another city out west not mentioned here is Reno, Nevada had under 3% vacancy for Q1. Rental increases tapered off with much of the covid inventory coming online. The limited apartment building coming online from the covid boom there continues to be strong appreciation in the multifamily and single family assets classes.