12.28.16: Luxury Apartment Demand Set to Fall in 2017

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.

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