Limited New Development in Cincinnati is Supporting Healthy Rent Gains
We’ve been through several cycles over the years, so it’s no surprise that many Midwestern rental markets are having their day in the rent growth sun while sunbelt markets are busy absorbing record new supply and rents in those markets are declining. Midwest markets are typically less volatile than the sunbelt, and in our experience they are in fact countercyclical during broader downturns in other areas of the country.
We can confirm strong rent performance all year in Cincinnati, with rents growing by at least 3% on renewals, and by high single digits in some cases on our new leases. Indeed, CoStar is confirming 3% rent growth generally in Cincinnati through Q3 2024, compared to CoStar’s national benchmark of 1.1%. As of October, multifamily vacancy in Cincinnati is 6.6% compared to the national rate of 7.8%.
While completions in 2024 are slated to hit an all-time high, market conditions have remained balanced and new supply still remains below 4% of total inventory. These conditions have kept the vacancy rate in line with the pre-pandemic average, and it is supporting healthy rent growth in Cincinnati even with above-market new deliveries.
For example, Northwest Cincinnati and North Hamilton, which combined account for 21% of market inventory, each ended the third quarter with rent growth of around 4%. Completions in Northwest Cincinnati, which includes suburbs along Interstate 75, are at record levels — but these deliveries represent the first first new units in this market in nine years. Limited new supply and strong demand in North Hamilton, a region we have been invested in for nearly 20 years, has pushed the vacancy down to just 3.5% as of the fourth quarter compared to 6.7% for the broader Cincinnati market, according to CoStar data.
In contrast, take a look at current rent growth in some sunbelt markets like Austin, TX. Southeast Austin suffered the deepest negative rent growth in the country with negative rent growth of 12.8%. In fact, of the 15 markets that suffered the worst nationwide rent declines, 9 were located in Austin. So if you’re a multifamily investor, we’d suggest you go to Texas for the boots, but Ohio for the party.
We also have exposure to downtown Cincinnati, where an authentic live/work/play environment is increasingly drawing new residents to the downtown core. Our internal research shows 2618 new apartment units either planned or underway in downtown Cincinnati (downtown Cincinnati also leads the country in office to residential conversions). Nevertheless, we are experiencing 3% rent growth on renewals vs. the 2% rent growth reported city-wide by CoStar through the third quarter. In addition, we are seeing strong occupancy in the downtown core, while CoStar is characterizing city-wide demand as “muted.”
Nevertheless, CoStar predicts that Cincinnati will likely see healthy rent gains over the near term as the construction pipeline shrinks. Elevated interest rates have weighed on the number of new projects breaking ground and should result in a significant slowdown in the pace of completions over the next 12 to 18 months. CoStar is now forecasting rent growth above pre-pandemic levels in the Cincinnati MSA, which is in marked contrasts to some of its sunbelt forecasts. With fewer completions pending in downtown Cincinnati, CoStar expects the still healthy rent growth in downtown Cincinnati to improve further as well.