An odd phenomenon keeps happening:
1)Apartment rents keep growing where little new supply gets built, and yet.
2) Apartment rents keep cooling where lots of new supply gets built.
CRE Analyst has a great post up this morning about apartment supply cycles and the relationship with rent growth. Their research shows a MUCH HIGHER correlation between supply and rents in this cycle (98%!) than in past cycles.
Why?
Because 1) For the first time in 40+ years, we're building so much supply in so many markets that it's having a very clear impact on rents.
And 2) Because unlike in prior cycles' supply peaks, this one is not being taken down by a recession. So in those periods (2001-02, 2009-10), rents fell not merely because of "peak" cycle supply, but primarily because demand evaporated. In this cycle, there's still strong job/wage growth.
Where are rents falling the most right now? Well, it's NOT where demand is weak. In fact, rents are falling in some of the hottest-demand markets -- an unusual phenomenon we haven't seen in a very long time. Because while there's a ton of demand, there's even more supply generational highs in deliveries.
Austin TX, Myrtle Beach SC, Daytona Beach FL, Sarasota FL, Jacksonville FL, Atlanta GA, Raleigh NC, Lakeland FL, San Antonio TX, Phoenix AZ.
In the 2010s through 2022, we saw some markets with "high" supply rank among the national leaders for rent growth, outperforming Wall Street forecasts. How can this be given everything we just covered? It's simple: Because relative positioning (No. 1 supply market!) doesn't matter. What matters is VOLUME of supply relative to demand in a given market. Demand routinely exceeded supply volumes that looked "big" but were actually quite manageable relative to demand... and indeed, demand often exceeded supply even in the highest-supplied markets between 2010-2022.
And I still think that's where we'll eventually end back up, given the recent plunge in new starts pointing to much lesser supply by 2026. At that point, the supply/rent correlation will likely drop from its current 98% just because there'll be much less supply to impact the market.
But where we sit today with peak supply: Rents are slowing where supply is going in big numbers. Rents are growing where there's little supply.
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