Landlords of upscale properties across the United States are bracing for rough conditions in 2017 that will likely force them to slash rents and offer deep concessions as a glut of supply brings a seven-year luxury-apartment boom to an end.
The Wall Street Journal reports that the turnaround follows a more-than-26% jump in U.S. apartment rents since early 2010, far outstripping inflation and income growth. But in 2016, rents rose a modest 3.8%, a significant drop from the recent high of 5.6% year-to-year growth in the third quarter of 2015, according to a report released today by MPF Research, a division of RealPage Inc., which tracks the U.S. apartment market.
“This will be a very challenged leasing environment almost everywhere,” MPF Vice President Jay Parsons said.
The slowdown is being driven by a flood of new apartments, not by a pullback in demand, according to Parsons. After the housing bust, demand for urban properties jumped as young, high-earning professionals eschewed homeownership and flocked to big cities. Developers responded by focusing most of their efforts on high-end properties.
Now, though, the number of upscale apartments coming onto the market appears to be outpacing the number of renters able to move into them: More than 50,000 new units were rented by tenants in the fourth quarter in the United States, six times the number in the year-earlier period. But that demand was overwhelmed by the 88,000 new units that were completed in the quarter, the most since the mid-1980s, according to MPF.