Rent Growth – There is a Road, But it’s No Simple Highway

2022 ended with a giant thud for rent growth.  As can be seen in the charts below, vacancy rates were up and rent growth was negative by more than it has been in a long time.  As 2023 began, the picture appeared slightly rosier for the asset class.  Vacancy rates continue to head higher, but a resilient renter has meant 2 months of positive rent growth.  This is far from intuitive given recent layoff headlines.  But, the aggregation of data for an economy as diverse as that of the United States hides both pockets of weakness and geographies with great strengths.  In the aggregate, we think the numbers are going to be tough to fight for a few quarters.  An influx of new supply is currently under construction.  At the end of 2022, there were 917,000 apartments under construction and that will boost the existing US apartment stock by 4.9%.  That’s more new supply than we’ve seen since the 1970s and surely those statistics will be alarming to some.  However, something that has been painfully obvious over the last few weeks is that different cities have had materially different economic paths.  Additionally, the data exists to help investors avoid a supply driven decline in rents.  Similarly, there are wonderful opportunities even in this environment for investors to attach ourselves to secular growth trends underpinned by demographic shifts that are more than just the upswing of an economic cycle.  We’ve touched on some of these drivers over the last several weeks, but e-commerce, logistics, affordability and aging Millennials are just the beginning.  Positive rent growth is likely not going to persist in the aggregate in the short term, but we will look for an ideal combination of our favorite growth drivers for future investments.  

Source: Apartment List