Record Apartment Construction Fails to Alleviate Rental Competition
In recent years, the rental market has undergone significant shifts, even as new apartment construction reached unprecedented levels. According to data from the U.S. Census, nearly 600,000 multifamily units were completed last year, marking the highest output since 1974 and a 34% increase compared to 2023. However, this influx of supply has not resulted in reduced competition for renters.
Growing Competition in the Rental Market
A new report from RentCafe highlights that rental competitiveness has increased even with the record-setting construction pace. As the year began, fewer renters were opting to move, leading to a rise in lease renewal rates. This year, 63.1% of renters renewed their leases, an uptick from the 61.5% recorded at the same time last year. Analysts suggest that the high mortgage rates and inflated prices in the home-buying market are influencing this trend.
Stable Occupancy Rates and Leasing Trends
Apartment occupancy rates remain robust, currently at 93.3%, a slight increase from the previous year. Many landlords are responding to the competitive landscape by offering extended lease terms, which contribute to the trend of longer renewal periods. On average, each apartment is now receiving seven applications.
Miami: The Most Competitive Market
Locally, Miami stands out as the most competitive rental market in the country, boasting an average of 14 applicants per available unit. Veronica Grecu, a senior creative writer and researcher for RentCafe, noted, “Throughout the last few years, Miami has established itself as ‘Wall Street South,’ attracting major banking institutions and investment firms.” The presence of thriving industries, combined with the absence of state income tax and desirable geographical location, continues to draw workers and businesses alike.
The Midwest’s Hot Rental Markets
Contrasting with Miami’s dominance, the Midwest region showcases high levels of rental competitiveness, with ten of the twenty most sought-after rental markets located here. Suburban Chicago claims the second spot, followed by cities such as Detroit, Lansing, Grand Rapids, Cincinnati, Milwaukee, and the Minneapolis-St. Paul area.
Rising Rent Trends Amidst Construction Surge
Rents, after a period of stabilization, are experiencing upward movement once more. Nationwide, there was a slight overall rent increase of 0.3% in February, ending a six-month stretch of declines. This time of year traditionally marks the beginning of the bustling rental season, with expectations of rising rents through the summer months. Although currently, rents are still 0.4% lower compared to February of the previous year, they remain approximately 20% higher than in January 2021.
Outlook for Rent Growth
After witnessing record rent growth in 2021 and the first half of 2022, the national median rent has subsequently dipped below the highs reached in August 2022 by 4.6%, translating to a $67 decrease per month. Reports indicate that while year-over-year rent growth has been negative since June 2023, there may be signs that the market is poised for recovery as the trend shifts back towards positive growth.
