10 Markets with the Greatest Rent Loss
- Jul 07, 2017
Rent growth has been decelerating in the majority of markets across the nation after a wave of new development hit the multifamily industry. We previously ranked the top 10 markets that outperformed the industry in rent growth despite unfavorable market conditions. Below is a list of the 10 markets with the greatest loss in rents from May 2016 to May 2017 based on data compiled by Yardi Matrix.
Despite falling rents, Manhattan still has the highest average rents in the nation at $4,094. Manhattan is the hub of the U.S. financial system and is home to notable universities. The city draws in millions of tourists each year, just one of the many industries driving the market’s economy. With limited new supply last year, occupancy was high at 97.9 percent as of May 2017. Though rents have dropped significantly, the market will likely continue to be strong moving forward.
2. Tulsa, Okla.
Though still largely tied to the oil and gas industry, the aviation industry has gained a notable presence in Tulsa, Okla. The market is home to many airlines’ headquarters, including American Airlines’ Maintenance and Engineering Center, one of the largest aviation maintenance facilities in the world. Tulsa had the perfect conditions for rent loss over the year: limited population growth, employment loss of 0.7 percent, low occupancy around 90 percent and a surge in supply of 4.5 percent.
3. Oklahoma City
Oklahoma City’s economy has deviated from its historic concentration in energy, but that hasn’t been enough to improve the markets multifamily fundamentals. The area had employment loss of 0.1 percent and limited population growth in 2016, and demand was not significant enough to absorb the substantial increase to supply last year of 3.1 percent, resulting in occupancy loss and rent loss.
Houston’s economic performance typically follows in tandem with oil prices, and the economy has been suffering in recent years due to the downturn in the industry. Late last year, optimism swept over the market after OPEC agreed to restrict production, but this wave of optimism diminished as oil prices have continued to fluctuate into 2017. Employment and population growth remain fairly stagnant, and the 3.0 percent increase in supply last year drove down both occupancy rates and rents in the market.
5. San Francisco
San Francisco, Calif.’s affordability issues are mounting. The market had substantial employment growth of 4.1 percent in 2016, but housing is so expensive that employees are choosing to live in markets outside of the San Francisco area despite the longer commute to work. The 1.6 percent increase to supply last year could have been a driving factor in the slight decrease in occupancy and rents, but affordability issues are still very present.
6. South Bay Area, Calif.
Though not as unaffordable as neighboring city San Francisco, the South Bay Area is facing affordability issues of its own, with residents fleeing to live in outside markets with a lower cost of living. There was an out-migration trend in 2016 despite employment growth of 3.1 percent, indicating the market is a business center but not ideal for living. However, developers delivered a substantial 5.6 percent increase to inventory last year, which, similar to San Francisco, could be putting pressure on rents.
7. Amarillo, Texas
Amarillo, Texas, serves as a regional medical center, and as such, the health care industry has a large presence in the market. Pantex, an assembly, dismantlement and maintenance plant for nuclear weapons, employs a large portion of Amarillo residents as well. Demand for apartment units has been fairly low with occupancy in the 90-percent range, and the 1.7 percent increase to inventory last year was likely the reason rents dropped over the 12-month period.
8. El Paso, Texas
El Paso, Texas has a notable military presence and is home to Fort Bliss, Biggs Army Airfield and William Beaumont Army Medical Center. The Medical Center of Americas and the headquarters of Western Refining are also based in El Paso, giving the healthcare and oil industries a notable presence in the market. With a 1.3 percent increase to supply, there was relatively no change to vacancy, indicating the market was able to successfully absorb the new supply, albeit at a lower rent amount.
9. Austin, Texas
Austin, Texas, has been thriving in recent years, with many businesses attracted to the favorable business conditions of the “Silicon Hills,” with a young, educated workforce following, driving the local economy. This trend continues, with net migration of 2.0 percent and strong employment fundamentals with growth of 3.9 percent in 2016. However, occupancy is fairly low at 94.5 percent, and the 1.6 percent increase in supply put downward pressure on both occupancy and rents.
With average rents among the highest in the nation, it is no surprise that Boston’s rents are facing downward pressure. Boston’s economy is anchored by universities providing a stream of highly skilled workers, particularly in the health services and technology sectors, driving employment up 2.1 percent in 2016. Although there is strong demand for lower cost rentals, the majority of new supply in Boston is concentrated in the luxury segment, and this mismatch is driving down average rents in the market.
If you missed the top 10 markets for rent growth, you can read it here.