U.S. Apartment Rents See First Yearly Drop Since Early 2021

For the first time since the onset of the pandemic, both annual and monthly rent growth rates have turned negative.

U.S. Apartment Rents See First Yearly Drop Since Early 2021

For the first time since the onset of the pandemic, both annual and monthly rent growth rates have turned negative.

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Good morning, and Happy Labor Day! Today's highlights: Rent growth rates drop for the first time since the pandemic onset. Manhattan's 100 MSF of vacant prime office space poses challenges for property owners. Additionally, the U.S. auto sector's move south, driven by EVs, signals economic shifts and cultural evolution.

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Market Snapshot

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*Data as of 8/31/2023 market close.


Apartment Rent Growth Declines for the First Time Since Pandemic Onset

The apartment market, once a hotbed of growth, is seeing a downward trend in rent prices, marking a shift from its previous trajectory, as noted in the September 2023 Apartment List National Rent Report.

Rent trends: Specifically, the rent index decreased by 0.1% in August 2023. Interestingly, this decline started a month earlier than it did the previous year, bucking the typical trend of prices rising in the spring and summer and dropping in the fall and winter. Just last year, all 100 surveyed cities reported positive year-over-year rent increases.

Contrast to previous years: The current annual rent growth is at -1.2%, meaning apartments are now 1.2% cheaper than they were a year ago. This is a significant change from past years when annual rent growth was as high as 18% nationally, with some cities even witnessing growth surpassing 40%.

Causes of rent volatility: Rent fluctuations primarily stem from the balance between apartment vacancies and renter demand. A previous shortage in 2021 and 2022 caused rents to soar. However, a 22-month increase in the vacancy index, now at 6.4%, and new apartment constructions have shifted the dynamics, making property owners more competitive for tenants.

City-wise overview: More than half of the country's 100 largest cities report decreasing rents. Significant drops are seen in "zoom towns" like Arizona, Nevada, Idaho, with Oakland, California, noting an 8.7% decline. Meanwhile, Midwest and New England cities, such as Chicago and Boston, show modest recent rent growth compared to prior years.


Zoom out: We're witnessing a pivotal shift in the rental landscape from skyrocketing rents to potentially greater leverage for renters. The slight rent decrease in August marks the beginning of a quieter rental phase, harking back to the early pandemic times in its year-over-year growth rate. With a slump in apartment demand and a surge in construction projects, the trend suggests a continued cooling of rent growth in the coming months.


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What Will Become of 100 Million Square Feet of Unused Office Space in Manhattan?

Manhattan's skyscrapers, once bustling centers of business, now stand eerily quiet. Amidst the echoing silence, a few spirited young employees try to reignite the office vibe. But with nearly 100 MSF of prime real estate vacant, the looming question is, what comes next?

Prime office space in new york empty

Source; The New York Times

A city in limbo: A year and a half after the pandemic, only 9% of NYC's office workers are back full-time, with total office occupancy at 41% of pre-COVID levels despite Mayor Eric Adams' push. It feels as if the city's heartbeat has momentarily stopped, causing unease and anticipation. Property owners are caught in this uncertainty, hesitant about the next steps.

Historical resilience: Caught in the midst of that stall is Eric Gural, whose family manages more than 55 properties and 13 MSF, or some 2% of the city’s office real estate. You might recognize the name since GFP Real Estate recently secured the winning bid for the Flatiron building, causing quite a stir earlier this year. However, this isn't the Gural family's first encounter with a wobbly real estate market; they've weathered challenges such as the 2008 economic downturn, the post-9/11 occupancy drop, and the 1990 financial downturn.

Searching for a silver lining: Still, the post-pandemic landscape feels uniquely challenging. Predictions suggest a potential $50B drop in valuations for New York's office spaces in the coming years. Yet, Gural carries a torch of optimism. He is convinced that the allure of office life remains intact for the younger generations, including his own children. He anchors this in our intrinsic desire for connection, collaboration, and the tangible experience of shared spaces.

One key challenge: The evolving definition of workspace. While luxury, state-of-the-art office spaces attract businesses, the Gurals, who are significant investors in Class B offices, face an uphill battle. These Class B spaces, distinguished by their vintage aesthetics and limited modern amenities, are now at a crossroads. Their transformation and relevance in this new world order remain in limbo.


NYC's concrete jungle: Amidst uncertainty, building owners, including the Gurals, are contemplating renovations, loan defaults, or conversions to housing or retail. The Gurals even considered repurposing parts of the Flatiron Building for housing or hotels. As perceptions of office spaces change, New York may see more buildings transition to residential or mixed-use. The city's adaptability will determine its urban real estate future.


🔗 Read: Initially, many Bay Area residents moved to cities like Austin during the pandemic's start, praising their new homes. However, a recent Insider report suggests their enthusiasm is waning.

▶️ Watch: China has rolled out multiple strategies to stabilize its residential property market and strengthen the weakening economy.

🎧 Listen: In this episode, Reid Bennett, a 22-year multifamily veteran, uncovers strategies, lender insights, and market trends that can elevate your investment approach.


Electric Revolution Drives Revitalization of Rural Southern Towns

Ford battery plant

The battery plant under construction in March at the Ford factory campus, called BlueOval City. Source: WSJ

The U.S. auto sector, propelled by the EV surge, is rapidly shifting south, bringing both economic opportunities and cultural adjustments to states like Georgia, Kentucky, and Tennessee.

The impact on small towns: Stanton, Tenn., a small town of 400, epitomizes this transformative change. Ford is constructing a 3,600-acre manufacturing complex expected to employ 6,000 workers – a stark contrast to the town’s existing population. This influx means planning for housing, education, and even considering establishing a local police force.

History repeats itself: This move mirrors the industrial migration that started in the early 20th century when Detroit became the auto hub. Now, with the transition to electric vehicles (EVs), the southern U.S. is seeing a boom in new auto factories and battery facilities. Since 2018, the U.S. has witnessed over $110 billion in EV-related investments, with half of this amount directed towards the southern states.

Why the South? Several factors are driving automakers to the South. The region has prepared by establishing essential infrastructure, training facilities, and competitive energy prices, which are particularly attractive for battery-making operations due to high energy consumption needs. For instance, Hyundai cited Georgia's ready workforce, logistical advantages, and energy costs as reasons for setting up a $5.5 billion manufacturing site there.

MV manufacturing migration to the south

Shifting sands: Detroit, traditionally the heart of the auto industry, is facing a decline. Auto employment in the Great Lakes region has decreased by 34% in the past two decades, while in the South, it's risen substantially, promising a potential addition of 40,000 jobs in the coming years. This trend indicates a more geographically distributed auto manufacturing landscape.


A double-edged sword: The southern U.S. is on the cusp of an economic renaissance, driven by the auto industry's shift. Yet, while towns like Stanton will undoubtedly benefit economically, they also grapple with the challenges of rapid urbanization. As Brian Hayes of Brownsville aptly puts it, both the "best and worst" are yet to come. It's a tale of growth, opportunity, and the inevitable growing pains of change.


  • Retail revival: JCPenney will invest $1B by 2025 to revamp its stores, boost online platforms, and expedite online deliveries.

  • Investment slump: Interest rate surges have led to a 52% decline in global CRE cross-regional flows, totaling $30.5B in 1H 2023.

  • Labor market eases: The US labor market's slowdown in August has investors optimistic about a balanced economic outcome.

  • Coverage cuts: Extreme weather risks have led major U.S. insurers to limit coverage and raise premiums and deductibles.

  • WFH trends: 20-25% of workers opt for WFH at least once a week, down from the 47% pandemic peak but up from 2.6% pre-2020.

  • Workout deal: Vella Group defaulted on a $79.1M loan linked to four industrial and office properties in Los Angeles' South Bay.

  • Just the real estate: Black Lion's Robert Rivani plans to offload two notable Miami restaurant properties for an aggregate of $55M.

  • New leadership: Two weeks following the president's resignation, Alexandria Real Estate Equities has announced his successors.

  • Bethesda exit: Three years post-launching one of Bethesda's biggest developments, Carr Properties is cashing out for $220M.

  • Growth in SFR: Master-planned communities, known for their expansive designs and supportive ecosystems for career-driven individuals, are witnessing a shift towards single-family rentals.

  • Cooling down: The self-storage sector is slowing down due to broader economic challenges, but a robust job market and strong consumer finances may boost demand.


fitch raitings

Despite economic challenges, Fitch Ratings expects the US non-life insurance sector's commercial real estate investments to remain stable in the medium term. The sector's main asset in its $2 trillion portfolio is high-quality fixed-income securities, constituting 55% of assets. With rising inflation, insurers have increased liquidity, with cash and short-term assets representing 7% of total investments.

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