The Sun Belt Is Seeing Some of the Biggest Rent Declines in America

Nine out of the ten U.S. metros with the steepest rent declines are in the Sun Belt, with Seattle being the only exception.

The Sun Belt Is Seeing Some of the Biggest Rent Declines in America

Nine out of the ten U.S. metros with the steepest rent declines are in the Sun Belt, with Seattle being the only exception.

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Good morning. Nine of the ten U.S. metros with the steepest rent declines are in the Sun Belt, with Seattle being the only exception. Plus, Overland Park, KS, has dethroned Minneapolis as the most sought-after city by renters in April.

Today’s issue is brought to you by AirGarage—lower your parking facility’s overhead with gateless technology.

Market Snapshot

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*Data as of 5/21/2024 market close.

RENT REPORT

The Sun Belt Is Seeing Some of the Biggest Rent Declines in America

Nine of the ten metros experiencing the largest declines in asking rents are located in the Sun Belt, according to a recent analysis by Redfin.

By the numbers: Seattle topped the list with a -7.3% drop in median asking rent year-over-year in April. Following Seattle, the Sun Belt cities of Austin, TX (-6.6%), Nashville, TN (-5.9%), and Jacksonville, FL (-5.6%) saw the largest declines. Miami, San Diego, Phoenix, Charlotte, Tampa, and Orlando also reported notable decreases ranging from -5% to -3.2%.

Zoom out: The median U.S. asking rent rose 1.1% YoY to $1,648 in April 2024, the first increase in a year, and climbed 1.7% from March 2024. While rents have stabilized compared to the dramatic fluctuations during the pandemic, they remain high, presenting affordability challenges. The median asking rent in April was just $52 below the record high of $1,700 set in August 2022.

Zoom in: Unlike the Sun Belt declines, the Midwest saw the fastest rent increases, reflecting its slower pace of new construction compared to the Sun Belt and its status as the most affordable region. Minneapolis recorded the largest increase at 10.3%, followed by Cincinnati (9.9%), Chicago (9.1%), New York (8.9%), Washington, D.C. (8.6%), Indianapolis (8%), Virginia Beach, VA (7.7%), Houston (6.7%), Boston (5.7%), and Detroit (4.9%).

➥ THE TAKEAWAY

It’s all about supply: The Sun Belt's rapid apartment construction during the pandemic has resulted in an oversupply, driving down rents and improving affordability—a valuable lesson for other cities grappling with housing costs. While Seattle isn't in the Sun Belt, it faces similar issues with high vacancy rates due to recent construction. Redfin Senior Economist Sheharyar Bokhari noted that while nationwide apartment construction is slowing, many new units are still coming online, contributing to rising vacancy rates.

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✍️ Editor’s Picks

  • Forecasting inflation: A survey of 43 inflation forecasters by NABE resulted in an average prediction of 2.6% inflation by the end of 2024, which should lead to a Fed rate cut later this year.

  • Homebuilding hits pause: Bay Area housing permits dropped by 10% to 16,535 last year due to rising construction costs, with Alameda County leading in new constructions.

  • Taking their talents to Tampa: Tampa can now call itself the new HQ of Toorak Capital Partners after a $550M investment from KKR. The firm has funded $12B+ in loans.

  • Snow to show: Colorado ski resorts are investing millions in new summer attractions due to impending climate change, with Copper Mountain leading a $100M improvement.

  • Enhancing liquidity: Regulators aim to enhance bank liquidity with newer requirements, as reported at this year’s Federal Reserve Conference.

🏘️ MULTIFAMILY

  • Crowning a new king: Overland Park, a suburb of Kansas City, just topped RentCafe’s list of most popular cities for renters, after enjoying 256% more page views on a YoY basis.

  • Pension preserves affordability: NYCERS invested $60M in a partnership to preserve 35K rent-stabilized apartments affected by Signature Bank's collapse.

  • Redefining rental living: Greysteel secured financing for Wolf Creek Farms, a 343-unit build-to-rent project in Melissa, TX (near the DFW metroplex) at $95M, with Welker Properties developing the site.

  • Barely bouncing back: After months of declines, Philadelphia multifamily rents increased by 0.1% to $1,729 per month, driven by necessity unit hikes.

  • Georgia expansion: Matheson Capital has entered the Savannah market with an off-market acquisition of the Residences at St. George, planning to invest over $2 million in renovations and amenity improvements.

🏭 Industrial

  • Mega move: Google (GOOGL) is all set to open a 1MSF distribution center in Alliance, TX, north of Fort Worth, with a $20.3M build-out cost.

  • Green in the desert: Nicola Wealth Real Estate sold Pinnacle Peak Commerce Center in Phoenix to Top 10 Properties for $21.85M, or around $233.13PSF).

🏬 RETAIL

  • Mall potential: A panel discussion at ICSC Las Vegas highlighted this year’s biggest retail trends, like enclosed malls and deliberate, high-quality investments, emphasizing mispriced risk.

  • Bargain buy: MRP Realty plans to buy Washington, DC's Gallery Place with major vacancies for 17% of its assessed value at $39M.

  • Luxury landmark: South Coast Plaza in Costa Mesa, CA, leased 30KSF to Bulgari, Cartier, and Gucci. The mall boasts over 250+ luxury brands.

  • Identifying opportunity: A new CBRE study highlighted retail's growth potential in secondary markets with lower rents for expanding occupiers.

🏢 OFFICE

  • Sinking ship: RFR faces $2.5B across 12 distressed loans on NYC properties as most post-pandemic valuations continue to flounder in the Big Apple.

  • Vacancy woes: Signature Bank's collapse raised availability to 26% at Silverstein's 1177 Sixth Ave, twice the avenue's average, the the building’s cash flow down 5% since.

  • Office evolution: Downtown Denver’s office vacancy rate hits a decades-high at 32.1%, but recently boosted tourism indicates growing interest.

  • Driving growth: Subaru (FUJHY), an auto brand you probably haven’t thought of recently, is expanding in Coppell, TX, with a new 200KSF regional office and distribution center.

  • Downward descent: Office rents on San Francisco's California Street have dropped 31% from $90PSF in 2020 to just $62PSF now due to record-high vacancy rates.

🏨 HOSPITALITY

  • Price-fixing folly: CoStar Group and major hotel brands are asking a judge to dismiss a price-fixing lawsuit over a lack of evidence, with the defendants calling the allegations “fanciful.”

  • Rising towers: Chicago developers are planning three towers with 2.5K apartments near the upcoming Chicago casino complex, and await city approval for construction.

  • Long live the Waldorf: The prestigious Waldorf Astoria at D.C.'s Old Post Office has just filed for foreclosure due to a $285M loan default. An auction is imminent.

📈 CHART OF THE DAY

You already know that relative apartment affordability compared to prohibitively expensive homeownership is driving the current rental wave nationwide. 

But did you know that the supply of apartments is finally reaching an inflection point with the number of available condos and single-family homes nationwide?

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