- Major apartment REITs are reporting weak rent growth, driven by sluggish new leasing activity and broader economic uncertainty.
- Renewal leases remain steady, but new-lease rents have declined across multiple portfolios, pushing some REITs to lower their full-year earnings guidance.
- Markets like San Francisco are defying the national trend due to strong tech sector demand, while cities like Denver, Austin, and Phoenix see steep rent drops.
A Tough Quarter For Multifamily Landlords
Major multifamily REITs face pressure as economic headwinds and fewer new leases continue to slow rent growth nationwide, reports Bisnow. In Q3, several landlords reported a widening gap between new and renewal lease rent growth — with some seeing negative rent growth on new leases for the first time this cycle.
UDR CEO Michael Lacy said rent blends started strong in Q3 but fell sharply in the last 45 days amid economic uncertainty.
New Leases Fall Behind
- MAA reported a -5.2% decline in new-lease rent growth, while renewals grew 4.5%.
- UDR saw a -2.6% drop in new leases versus 3.3% growth on renewals.
- Essex Property Trust noted new leases fell 0.5%, but renewals were up 4%.
Retention has become a lifeline for REITs this year, as tenants delay moving in the face of inflation, job market concerns, and homebuying costs. But the weakness in new demand is keeping average rent growth nearly flat: just 0.5% year-over-year in Q3, per CBRE.
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REITs Cut Guidance As Rent Softens
With rental growth faltering, some landlords are adjusting expectations:
- AvalonBay Communities lowered its full-year core FFO guidance to $11.25, down from $11.39.
- MAA trimmed its projection to $8.74 per share, down from $8.77 in July.
Both companies cited falling average lease rates and softer new-lease pricing as reasons for the downward revisions.
Economic Woes Cloud The Outlook
Beyond real estate-specific issues like oversupply, macroeconomic conditions are compounding challenges. Job losses — including a 13K drop in June and a 32K private sector dip in September (per ADP) — have disrupted confidence. The ongoing federal shutdown has further slowed leasing activity.
Consumer confidence has fallen three straight months, and despite two Fed rate cuts, Chair Powell gave no assurance of a December cut.
A modest bump in home sales (up 4.1% year-over-year in September) could also start drawing renters away, putting more pressure on multifamily landlords reliant on lease renewals.
Markets Are Diverging
Rent declines are hitting especially hard in markets like:
- Denver and Austin: down nearly 8% YTD
- Phoenix: down 5%
- The South overall: down 1.7%
- The West: down 0.4%
But not all REITs are feeling the pain equally. Essex Property Trust, with a heavy Bay Area focus, saw Q3 blended rent growth of 3%, thanks to strong demand from tech and AI employers in San Francisco and Santa Clara County.
“This is a proven example of the competitive advantage of our low-supply markets,” said Essex CEO Angela Kleiman.
Looking Ahead
The multifamily sector’s near-term outlook remains mixed. Renewal rents continue to support earnings. However, weak job growth and low new lease demand may keep rent growth muted through year-end, especially in oversupplied or struggling metros.
With regional performance diverging sharply, landlords may need to lean more heavily on retention and shift strategies to preserve occupancy and cash flow in an uneven market recovery.
