After a construction surge unlike anything seen in 40 years flooded the rental market with shiny new apartments, landlords are finally breathing a sigh of relief.
The glut of vacancies that plagued the industry is starting to wane as more renters rush to grab leases.
Demand last quarter hit levels not seen since 2021, marking a pivotal moment for landlords, according to an analysis by CoStar, obtained by the Wall Street Journal.
Over the past two years, a jaw-dropping 1.2 million new apartments were built, filling up faster than some experts anticipated.
With the economy holding steady and home prices sky-high, landlords could soon be in a prime position to hike rents next year.
By the end of 2024, an additional 672,000 units are expected to be completed, but a serious slowdown in new projects looms on the horizon for 2025 and beyond.
“The worst of the pressures on pricing from new supply are likely behind us,” said Eric Bolton, the CEO of Mid-America Apartment Communities, during an earnings call in October.
This newfound confidence has also given a boost to investors, sparking a rise in apartment building sales across the country, especially in cities like Denver, San Francisco and the suburbs of Washington, DC.
Renters have had it tough in recent years. Skyrocketing rents during the pandemic hit many, especially in the Sunbelt, with cities like Phoenix and Tampa seeing jumps of 20% or more within a single year.
While the rental market has held steady for new leases lately, those sticking around to renew have still faced average rent hikes of 3.5%, according to Yardi Matrix.
But not everywhere is on the upswing.
Austin, Texas, finds itself in the crosshairs of overbuilding. With its vacancy rate sitting at 15%, the highest in the US, landlords are practically begging tenants to sign leases with offers of months of free rent.
“Basically, the worst apartment market in the country right now is Austin,” Matt Rosenthal, managing partner at Eastham Capital told the Journal.
Meanwhile, other cities are showing resilience.
Rent renewal rates in places like New York City and Los Angeles grew by more than 5% this year, fueled by a return-to-office push. Equity Residential noted a recent bump in demand from Amazon workers in Seattle, who are bracing for a strict office attendance policy starting in January.
With potential rent hikes on the horizon, housing costs are bound to become an even hotter topic on the political stage.
In the home-buying world, it’s still slim pickings for renters looking to move up the ladder.
Joe Fisher, president of UDR, summed up the current trend, saying, “Probably the biggest story this year that we’ve seen [is] from people coming in the front door and then not leaving [out] the back door.”
