Apartment Growth in US West Slowest in Nation Since 2020
Apartment rent growth in the Western U.S. is now the slowest in the nation since the pandemic.
Jordan B. & Han-Gwon Lung
March 26, 2024
Good morning. Apartment rent growth in the Western U.S. is now the slowest in the nation since the pandemic. Meanwhile, the success of Miami’s Design District, which used to be abandoned warehouses, could be instructional for other urban revitalization projects worldwide.
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Market Snapshot
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*Data as of 3/25/2024 market close.
RENTAL MARKET
US West Notches Nation’s Slowest Apartment Rent Growth
Since the pandemic, apartment rents in the Western region of the U.S. have grown at the slowest rate in the nation compared to other regions, according to new data from RealPage.
Below average: Historically leading in rent rates, the West region's growth has significantly slowed, marking a pivotal shift. From February 2020 to February 2024, rents rose by roughly 20% to an average of $2,204, the most sluggish increase across the U.S. This contrasts with a 29% surge in the other three regions, where the national average now stands at $1,806.
Comparing rates: As of February 2024, the Northeast took the lead with the highest average rent of $2,221, surpassing the West by a mere $17. This is a meaningful change, as the West's rent prices had consistently topped the charts prior to November 2023. Meanwhile, the South and Midwest remain below the national average, aligning with historical patterns.
Space and value: Despite losing the overall price lead, the West still commands the highest rent per square foot (RPSF) at $2.53, indicative of its smaller average apartment size (871 square feet). The Northeast follows closely, while the Midwest and South trail with lower RPSF values. Nationally, the average RPSF is just under $2.00.
➥ THE TAKEAWAY
Cooling off: The rental market is adjusting, with the West and South seeing a deceleration in rent increases. The South experienced a 1.2% decline, and the West a 0.4% dip in the year ending February 2024. Conversely, the Midwest and Northeast continue to see rent growth, outpacing the national average.
✍️ Editor’s Picks
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Market update: MSCI Real Assets reported that the RCA CPPI National All-Property Index fell 4.0% YoY in February, with office (-15.2%) leading the decline.
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Santa Monica makeover: SC Holdings will invest $10M in Santa Monica Pier's Pacific Park, a popular LA attraction, over the next 5 years.
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Texas Triangle: The Criterion Fund is raising capital to acquire a 15-unit gas station portfolio and execute a sale-leaseback. (sponsored)
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Campus cohort: College towns are in for a nice surprise as investors favor student housing for stable returns. Meanwhile, Clemson University faces a dorm shortage.
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Property problems: NYCB and Meridian, once property boom partners, are now struggling. NYCB shares are down 65% as the embattled bank faces leadership changes.
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Garage glamour: A West Village garage converted into luxury condos draws $100M in deals. The developer bought the garage for $64M in 2022.
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Kicking the can: U.S. CRE defies doomsday predictions as defaults are up, but not dire. 'Prisoner's dilemma' loan extensions boost resilience, although sustainability questions loom.
🏘️ MULTIFAMILY
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Multifamily ML: RealSage, an AI-driven software, closes a $4M seed round led by York IE as it plans its U.S. expansion. AI’s impact on real estate is expected to hit $8.9B by 2026.
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Trimming, thriving: Centerspace REIT (CSR) sold 13 communities for $226.8M in 2023, including Southdale Parc and Wingate Apartments in Minnesota.
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Price plunge: U.S. multifamily property prices fell 1% in February and are now down 18.4% from their peak, but are still 14.3% above January 2020 levels.
🏭 Industrial
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Southern surge: U.S. Southern and Southeastern regions lead in emerging industrial markets, with Charleston, FL’s 4.2% job growth making headlines.
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Storage goldrush: Zenith IOS, led by Ben Atkins and Daniel Laub, owns 50 industrial properties worth $600M, capitalizing on limited industrial supply.
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Mega move: Amazon (AMZN) commits to a 10-year lease at a 1.2MSF industrial facility in Phoenix, the largest known lease deal of the year.
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Investment boom: Cohen Asset Management recently purchased Elwood Rising, a 120KSF industrial development in Goodyear, AZ, for $21.8M.
🏬 RETAIL
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Shapewear shake-up: Kim Kardashian's Skims Body leased 20KSF at 647 Fifth Avenue for 75% less rent than Versace's prior $770 PSF lease.
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Design dominance: Miami Design District expands with an $18M purchase of a 7.98KSF building housing a Boffi | DePadova showroom.
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An aisle for everything: Aldi is leading all grocers with 109 new store openings in the U.S. last year, and plans to invest $9B over the next 5 years into 800 new stores by 2028.
🏢 OFFICE
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Bottom bargain: Austin firm Capital Commercial Investments bought a 164KSF office in Irving at $56PSF for $9.1M, although it’s only 24% occupied.
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Revamping Wildwood: Vision Properties refinanced Atlanta's Wildwood Center with a $65M loan from Franklin BSP Realty Trust, one of the largest recapitalizations this quarter.
LUXURY HOTSPOT
How LVMH Revived an Abandoned Miami Warehouse District
One of the keys to the Design District’s success has been mixing its 30 acres of retail with outdoor sculptures and murals (Photo: WSJ)
LVMH Chief Executive Bernard Arnault and Miami developer Craig Robins teamed up to transform an abandoned Miami warehouse district into a luxurious hot spot.
Luxury oasis: The Miami Design District, once a collection of dilapidated warehouses and empty lots, has been transformed into a luxury shopping destination, featuring flagship stores from LVMH's portfolio, including Louis Vuitton and Loewe, as well as rivals like Hermès and Chanel. This metamorphosis was driven by Robins and Arnault's shared vision to create a southern SoHo, culminating in the formation of Miami Design District Associates.
Business is booming: Over the past 14 years, the Design District has defied skeptics, becoming a globally recognized luxury retail center. With foot traffic increasing by 47% in recent years, the district has outperformed traditional luxury corridors like New York's Meatpacking District and Chicago's Magnificent Mile. The area's success is attributed to its unique blend of retail with outdoor art, making shopping experiences resemble visits to art galleries.
By the numbers: The asking rents in the Design District have surged 200% since 2019, marking the most significant increase in North American prime retail corridors. For some brands, the Miami location has become their top-performing store in America, highlighting the district's allure to both luxury retailers and consumers.
➥ THE TAKEAWAY
Global influence: Craig Robins' visionary work in the Design District has catalyzed Miami's rise as a global hub for culture and luxury, blending high-end retail with prestigious art events, Michelin-starred dining, and exclusive venues. “Miami was not thought of as an inventor of global cultural content,” Robins said. “I really wanted to change that.”
📈 CHART OF THE DAY
Chart showing the spike in 2024 commercial and multifamily loan maturities by PGIM Real Estate via Dave Wald.
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