Indianapolis Sprints Ahead of Miami in Nationwide Rent Growth Race
Indianapolis Becomes Rent Growth Leader Due to Balanced Supply Dynamics
In November 2023, Cincinnati was leading the country in rent growth. Now, Indianapolis has taken the lead, and it looks like rent growth in 2024 will be dominated by markets like Indianapolis, Cincinnati, Louisville, and even Dayton and Cleveland.
For now, however, the undisputed leader is Indianapolis. In the month of December, the Indy metropolitan area notched rent growth of 7.4%, besting Miami (6.8%) by more than 50 basis points.
Migration Patterns may be Shifting
Rent growth across the country has slowed due to reduced demand and increased deliveries of brand new Class A multifamily properties, primarily in Sunbelt markets. Economic uncertainties also kept people from moving. In Florida and other parts of the Sunbelt, in-migration also seems to have slowed as costs rise, according to CoStar research.
Of the 40 largest apartment markets tracked by Apartments.com, Las Vegas and Phoenix were the only two markets to see rent declines in December. For the full third quarter of 2023, however, rent declines were more widespread. Seattle had the largest rent decline during the fourth quarter of 2023, with rents dropping 2.6%. Denver was one of eight markets where rents dropped by 2% or more. The other markets with rent declines of 2% or more included Raleigh, Las Vegas, Charlotte, San Jose, Salt Lake City and Atlanta.
Miami & Indianapolis: A Tale of Two Cities
Miami had been at the top of the national rent growth rankings, with rent growth in July of 14.6%. By November, rent growth in Miami had slowed to 7.7% as new construction boomed. There are currently 28,383 new units under construction in Miami, which represents 15.6% of Miami’s 181,094 units of inventory.
Meanwhile, Indianapolis, which had been rising in the rent growth rankings over the past several months, had only 5,245 new units under construction, representing just 3.2% of existing inventory. Cincinnati, which ranked third behind Miami for December rent growth, has a multifamily construction pipeline that would increase inventory by a modest 4.2%.
Irrational Exuberance is Alive & Well
Job growth drives household formation, and household formation drives demand for housing. If you are investing in multifamily real estate in markets where there is high job growth and high levels of in migration, chances are good that your competition is not just other investors, but also developers and the banks that compete to finance them.
This often leads to supply/demand imbalances that can derail even strong business plans and good sponsors, leading to (at best) substantially longer hold periods while these markets rebalance. Midwestern markets typically do not see such dramatic supply/demand imbalances, yet the financial returns we’ve seen in our markets are just as attractive (if not more attractive) than the more popular “cocktail party” markets like Phoenix and Las Vegas. Accordingly, especially on a risk-adjusted basis, we believe that the Midwest is a better place for multifamily investment dollars.