U.S. rent growth increased to 2.9% in the third quarter this year, up from last quarter’s 2.5%.
According to RealPage’s Q3 report, this is the result of unusually strong demand this quarter.
“Momentum in the apartment market’s performance during the third quarter slightly surpassed expectations,” RealPage Chief Economist Greg Willett said in the report.
As it stands, demand outstripped supply by more than 20,000 units. Americans leased 106,716 apartments while only 83,170 units were delivered. Year-to-date, the number of occupied apartments has increased by 295,750 units while new deliveries totaled 232,911 units.
All this consumption pushed occupancy up from 95.4% in Q2, to 95.8% in Q3.
“Still, there doesn’t seem to be a pronounced shift in the big-picture story. We are about to move into the period of seasonally slow apartment leasing that comes with the cold weather months. Demand will trail completions just ahead, making it tough for the rent growth pace to gain additional traction,” Willett added.
According to the report, building levels are still high in the apartment market. Market-rate apartment completions have totaled between 300,000 units and 325,000 units annually since late 2016, and that pace appears to be par for the course through the end of 2019.
Apartment markets in line to receive the brunt of the new supply are Dallas, Los Angeles, New York, Washington, D.C., and Seattle. New supply in these markets will present a challenge to rent growth going forward. Dallas leads the pack with roughly 28,000 units on the way, and with Fort Worth’s production lumped in, that total swells to about 35,000 units underway.
As has been the case for some time now, the gap between affordable and high-end apartment performance is in full effect. Willett says much of the product on the way is in the high-end class and will put downward pressure on the class’ rent growth, while moderate to affordable product will continue to soak up high levels of demand and maintain its momentum.
“With so much high-end new product finishing in the near term, the leasing environment will be competitive in that luxury apartment niche,” Willett said.
“At the same time, product shortages remain for moderately priced rental housing. It’s tough to find available apartments at the middle to lower-end price points across most neighborhoods,” he added.