Midyear 2019 Top Markets for Rent Growth

This article was originally published on Arbor Chatter: Midyear 2019 Top Markets for Rent Growth, and all charts and images are from Arbor Chatter.

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• The national average asking rent increased 1.9% as of midyear 2019, and is forecasted to grow 4.2% for the full year.
• The multifamily market with the most substantial rent growth over the last 12 months was Denver.
• Knoxville and Albuquerque broke into the top five markets for rent growth during the first half of the year.

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At the midpoint of 2019, key indicators showed that the U.S. multifamily market has been off to a strong start.

According to Reis, the national average asking rent increased 1.9% during the first half of the year and is forecasted to grow 4.2% for the full year. Additionally, the vacancy rate improved to 4.7%, down from 4.8% at the end of 2018.

A closer look at the top-performing markets over the last 12 months, as measured by rent growth, shows some familiar strong performers as well as some newcomers.

Denver Moves to the Top

The multifamily market with the most substantial rent growth over the last 12 months was Denver, fueled by a diverse economic base and flourishing technology industry. Reis reported that Denver’s average asking rent reached $1,461/unit at the midyear point, up from $1,364/unit one year ago. The metro’s average asking rent has risen in every quarter since 2009.

This market boom has fueled a wave of new construction, which has put pressure on vacancy. The vacancy rate for Denver’s multifamily market increased to 6.1% at midyear, up from 5.3% one year ago. The vacancy rate was also among the highest nationally for primary markets.

Elevated construction activity is expected to continue. A total of 9,800 new units forecast to be delivered to the Denver market this year. This is compared to the 11,300 units delivered in 2018, which was the market’s highest annual total on record. However, demand remains strong. Absorption is forecasted to approach 8,000 units this year, following a record high of 8,800 units in 2018.

Las Vegas and Phoenix Remain Strong

Las Vegas and Phoenix took the top two spots for multifamily rent growth in 2018, with growth rates of 8.8% and 8.3%, respectively. However, the two metros slipped to the second and third slots to start the year.

The average asking rent in Las Vegas, which has risen in every quarter since 2011, registered $1,124/unit at midyear 2019. This was up 6.9% from one year ago. The delayed yet strong rebound from the recession has driven the local economy, although further improvement will depend on continued gains in industry sectors outside of entertainment and tourism.

Rent in Phoenix grew 6.8% over the last 12 months, finishing at $1,081/unit, having risen in every quarter since 2010. Despite being struck by the recession, the diverse job market in Phoenix has recovered significantly. Additionally, its population has been the fastest-growing in the country.

Knoxville and Albuquerque Break Through

Knoxville and Albuquerque broke into the top five markets for rent growth during the first half of the year, with year-over-year growth rates of 6.8% and 6.3%, respectively.

Multifamily rent in Knoxville has risen for seven consecutive quarters, reaching $801/unit at the midyear point of 2019. It is forecast to increase 6.9% overall this year. Additionally, vacancy fell to 3.4%, its lowest level in nearly 20 years. The metro’s vacancy rate was also among the tightest nationally. The University of Tennessee is a reliable driver of the local economy, which boasts an unemployment rate among the lowest in the country.

The average asking rent in Albuquerque reached $889/unit at midyear and has risen for six consecutive quarters. The vacancy rate was among the lowest in the country. Rent is forecasted to increase 4.0% for the year, driven by a well-educated workforce and diverse economic base. This includes the opening of a new Netflix production hub and Facebook data center.

Las Vegas Multifamily Market Snapshot — Q4 2018

The Las Vegas multifamily market posted the highest rent growth in the nation during 2018, bolstered by strong migration trends and a high concentration of prime-age workers. The vacancy rate increased slightly, driven by a rise in new construction, yet it remained among the lowest nationally. Investment activity continued at a robust pace, although it fell slightly short of 2017’s record level.

Source: Arbor Chatter

Las Vegas Posts Highest Multifamily Rent Growth in U.S. in 2018

This article was originally published on Arbor Chatter: Las Vegas Posts Highest Multifamily Rent Growth in U.S. in 2018, and all charts and images are from Arbor Chatter.

Las Vegas experienced the fastest rent growth in the U.S. during 2018, with an 8.6% year-over-year increase in asking rent, according to Reis.

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The Las Vegas multifamily market posted the highest rent growth in the nation during 2018, driven by strong migration trends and a high concentration of prime-age workers. A rise in new construction bolstered a slight increase in the vacancy rate, yet it remained among the lowest nationally. Investment activity continued at a robust pace, although it fell slightly short of 2017’s record level.

Multifamily demand is expected to remain high in 2019, as the local economy expands further into the cycle, especially given that the rapid increase in home prices has reduced homeownership demand.

Rental Market

According to Reis, the asking rent in Las Vegas averaged $1,097/unit at the end of 2018, an increase of 8.6% year-over-year, and the fastest growth in the U.S. Additionally, rent has risen in every quarter since third-quarter 2011. Class A rent increased 9.2% during the year, while Class B/C increased 6.7%. Overall, Reis forecasts rent to increase 5.0% during 2019, then slow into the 3.4% range through 2023.

Driven by the addition of new supply, the market vacancy rate increased to 4.0%, up from 3.2% at the end of 2017, yet it remained among the 20 lowest nationally. Class A vacancy climbed to 5.0%, up from 3.7% one year ago, while Class B/C increased to 2.9%, from 2.7%.

The pace of construction continued to accelerate, with more than 3,800 units coming online during the year. This surpassed the 2017 total of 2,900 units, and marked the highest annual total for the market since 2001. Absorption edged higher, although it was unable to keep pace with new supply, totaling just over 2,500 units.

Reis forecasts indicate that 2018 was the likely peak for apartment construction in the market, with 1,100 units expected to be completed during 2019. Demand is also expected to overtake new supply, as absorption is forecasted at more than 1,300 units for the year.

Sales Market

Multifamily investment has increased substantially in Las Vegas over the last three years. Real Capital Analytics reported that sales volume totaled $2.2 billion during 2018, double the 10-year average of $1.1 billion, although momentum was down compared to 2016 and 2017.

Real Capital Analytics also reported that apartment cap rates in Vegas averaged 5.5% during the year, down from 5.7% at the end of 2017, and the lowest level on record. The average sales price was $122,388/unit for 2018 sales, the highest since 2007.

Economic Overview

The Las Vegas economy has traditionally been dictated by its well-known gaming and entertainment industry. However, the area’s strong migration trends and high concentration of prime-age workers have driven the current cycle.

According to the U.S. Bureau of Labor Statistics, total nonfarm employment in the Las Vegas-Henderson-Paradise, NV, metro increased 3.9% during 2018, as compared with 3.2% during 2017, and 1.8% for the U.S. overall. The largest gains were reported in the manufacturing (up 15.0%) and construction (up 12.3%) sectors, with no major sectors reporting losses.

Vegas-area home prices continued their rapid increase, raising affordability concerns and reducing homeownership demand. The S&P CoreLogic Case-Shiller Las Vegas Home Price NSA Index increased 12.1% during the 12 months ending in November, which was the highest among the 20 cities covered in the index. As a comparison, the U.S. National Home Price Index registered a 5.8% gain.

For more multifamily trends and insights, view our U.S. multifamily market update.