Midwest Strengthens Hold on Highest Apartment Rent Growth in the Country
Sun Belt Markets Slide Further With High Levels of New Construction
Healthy job growth and a dearth of new construction is helping Midwest markets maintain their grip on the nation’s best rent growth, while a hefty pipeline of new units coming online across the Sun Belt and a weakening economy is contributing to lackluster growth in comparison.
Indianapolis, Cincinnati, Columbus, Ohio, and St. Louis once again held the top four spots for highest rent growth among the country’s largest markets, according to the latest report from CoStar Group’s Apartments.com. Due to a combination of less competition from new units being delivered and healthy job growth, Indianapolis rent growth came in at 6.1% in April, followed by Cincinnati’s 5.6%. Columbus’ 4.8% and St. Louis’ 4.3%.
However, year-over-year rent growth in each of these four markets also decelerated, which is in line with the national slowing trend. Miami and Orlando, two of the strongest Sun Belt markets for rent growth during much of 2022, also decelerated as historically high construction pipelines bring more apartment units into service at the same time that demand in markets like Miami and Orlando is softening.
Transaction Volumes Fall as Price Discovery Process Continues
Investors, owners and lenders have been closely watching rent growth amid economic uncertainty, with rent growth serving as a factor in determining apartment values in potential deals. Apartment sales volume has dropped significantly since last year largely as lending costs have risen dramatically and lenders have tightened their belts on issuing loans.
Rent growth has slowed in Sun Belt markets where a large portion of the more than 1 million units are in the pipeline.
Miami’s rent growth slowed to 2.9% from 3.8%, dropping a spot to hang on to a top 10 spot. Orlando plunged further in the rankings as its rent growth to 1.4% in April from 2.9% in the prior month.
Both are at historic levels of construction, which creates greater competition. The Miami market has the highest percentage of existing units under construction among the largest U.S. apartment markets with 17.7%, according to CoStar data. Orlando is at 13.1%.
Midwest Supply/Demand Fundamentals Are In Balance
The Midwest markets that lead the country in rent growth have far fewer units under construction. New supply in Indianapolis is at 4.2% of existing inventory, just under Cincinnati’s 4.3%. Columbus has the highest of the top four markets with new supply coming in at 4.7% of existing inventory, while St. Louis was the lowest with new supply equal to 3.1% of existing inventory.