Across the country, apartment real estate has been booming during the longest-running U.S. economic expansion on record.
Job growth has helped drive demand for new apartments and construction generally hasn’t been able to keep up. In this year’s second quarter, more than 100,000 apartment units were filled while 78,000 were delivered to the market.
These conditions have helped push rents up across the country. Rent growth averaged about 3.2% over the past year, off from the peak of about 5% four years ago when developers began producing more apartments.
Many of the new apartments are at the high-end of the pricing and tend to be in less affordable areas, putting some limits on rent increases. As a result, owners of older apartment properties have been able to push rents higher at faster pace than new ones.
10. Inland Empire, California – 4.4%
Low vacancy has been a key driver in apartment rent growth. The area is home to a booming logistics industry and has historic low unemployment.
Developers finally kicked construction into gear at the beginning of last year. New apartments coming on line have helped slow rent growth but only a bit from its 5.5% average before the previous year.
(Tie) 7. Charlotte, North Carolina – 4.5%
The Queen City’s strong job growth attracted a lot of new apartment construction over the past couple of years and more is on the way. New apartment construction has driven Charlotte’s vacancy rate to 7.2%, the highest in the Top 10.
Most of the construction, though, has been at the high-end, which translates into higher rents. Apartments at the lower end, meanwhile, have been able to increase prices at a faster pace and still be more affordable than the new ones.
(Tie) 7. Honolulu – 4.5%
Hawaii’s biggest city rarely has new construction. No new apartment units were delivered over the past year. Still, renting tends to be a more affordable option on the island because home values are high, nearly half of all households rent.
As such, the city has some of the highest rents in the country. Even though vacancy has creeped up, rent growth has stayed above 4% for about a decade.
(Tie) 7. Boston – 4.5%
Apartment rent growth peaked in 2015 along with the rest of the country. But this northeastern city has has been one of the top areas for new construction.
Boston currently has nearly 22,000 apartment units under construction, which is 10.3% of its total inventory, the highest in the Top 10. Rent growth is limited in areas around the city where construction has been the highest.
6. Austin – 4.7%
There’s no surprise that the Texas capital has strong rent growth given the booming technology sector and resulting job growth. Apple’s plans to bring 5,000 jobs to a $1-billion campus in Austin should give the city another shot in the arm.
But it’s a turnaround story. Rent growth had exceeded 6% in 2015 then slid to nearly zero in the third quarter of 2017.
Delivery of new apartments slowed into last year after a hefty spate of construction over the preceding years. It’s also noted that the city’s inventory has increased by nearly 35% over the past decade.
(Tie) 4. Fresno, California – 5%
The city has one of the lowest apartment vacancy rates in the country at 3.5%. Low vacancy is common for Fresno. Last year, the city hit an historic low.
Job and income growth has helped drive rent growth. But new construction has been limited. Just 474 units were delivered over the past 12 months and 471 are under construction now, representing less than 1% of Fresno’s overall inventory. That’s the lowest percentage in the Top 10.
(Tie) 4. Worcester, Massachusetts – 5%
This area’s apartment rent growth is a function of scarce new construction. Only 72 apartment units were delivered over the past year. The city has the lowest vacancy rate in the Top 10 at 2.5%.
The health services sector has been picking up as the area’s manufacturing base continues to shrink. Overall, the local economy remains sluggish.
3. Raleigh, North Carolina – 5.3%
Strong population growth attracted a lot of new apartment construction, causing vacancies to peak early last year. The rate high-end properties exceeded 12%.
But rents have been rising of late as vacancy has fallen and landlords nix concessions to attract new renters. The strongest apartment rent growth has occurred in North Cary/Morrisville and northwest of Raleigh, two place that tend to be home to higher-paying jobs.
2. Las Vegas – 7%
After being pummeled during the recession, the Nevada gambling and tourist destination continues to recover. Job and population growth has been above the national average lately and that has been driving demand for apartments.
The city’s apartment rent growth is more than double its historical average. Much of the rent gain has occurred at older properties.
Construction has been healthy. Nearly 11,000 new apartment units have been built since 2015
1. Phoenix – 7.3%
Like Las Vegas, the recession hit the Arizona capital hard, particularly its single-family home market.
Phoenix has seen strong job growth since the end of the recession. The city’s apartment market has benefited from limited new home construction and rising prices on existing homes. That’s pushed renters into apartments.
New apartment construction hasn’t matched the demand, which pushed vacancy to an all-time low of 5.6%. Phoenix has the rare distinction of a metro that can sustain robust rent gains while absorbing an inundation of new supply..