The Most Competitive Rental Markets in Early 2023
This leaderboard brings some surprises, including the #1 spot.
At the beginning of the year, demand across multifamily rental markets remained elevated. However, economic headwinds along with seasonal shifts have contributed to a slowdown across some regions, and others have moved up in preference.
A new report from RentCafe showed that Northeastern markets moved up toward the top of the list in renters’ preferences, joining Sun Belt metros that retained their strong position. RentCafe analyzed the 134 largest rental markets across the nation, looking at five key metrics to conclude a competitivity score: average number of days an apartment remains vacant, market occupancy, number of prospective renters competing for an apartment, the percentage of renters that renewed their leases and the share of available apartments that came online this quarter.
Based on these metrics, a Rental Competitivity Index (RCI) value was awarded to each metro. The national RCI was 60 in the first quarter, indicating a moderately competitive market.
North Jersey – the most competitive market
North Jersey, N.J., became the most competitive rental market, overtaking Miami-Dade County at the beginning of the year. North Jersey achieved an RCI of 115, almost double the national average, as renters sought out popular alternatives to Manhattan to settle down, such as Jersey City and Newark.
On average, apartments in the market remained vacant for 34 days—four days less than the U.S. average—and there were 12 prospective renters for each apartment—four more than the national figure. North Jersey was faced with too much demand relative to new supply, an issue which has been building up in other major markets as well—only 0.3 percent of the total available apartments were completed during the first quarter, 10 basis points less than the U.S. average. Meanwhile, the market clocked in on the third spot in terms of vacancy, at 96.6 percent, 240 basis points higher than the national rate.
Other popular Northeastern markets climbed the rankings and landed in the top 20, competing with attractive destinations in the Sun Belt or the Midwest. The list included Harrisburg, Pa. (with an RCI of 111), Central Jersey, N.J. (RCI 87), Suburban Philadelphia (RCI 85) and Pittsburgh, Pa. (RCI 80).
More than half of renters nationwide renewed their leases
In the first quarter, 60.7 percent of renters renewed their leases across all 134 markets analyzed. Although this was 400 basis points lower than a year ago, demand remained high. It is also worth pointing out that the first quarter of 2022 represented the tail-end of 2021’s incredible performance, so overall, lease renewal rates returned to a more normal pace.
Central Jersey, N.J., had the highest lease renewal rate, at 84.5 percent. Renters in the popular Northeastern area preferred to stay in place and rent rather than seek out new apartments. The market’s occupancy reached 96.0 percent—180 basis points higher than the national average. Coupled with only 0.6 percent of available apartments constructed this quarter, the market might face a supply issue going forward. Central Jersey had an overall RCI of 87 at the start of the year.
Of the top five markets with the highest lease renewal rate, three others were situated in the Northeast—Harrisburg with 75.8 percent renewal, Suburban Philadelphia with 74.9 percent, followed by North Jersey at 72.2 percent.
Rounding out the top five was the Midwestern city of Grand Rapids, Mich., which recorded a lease renewal rate of 73.7 percent.
Construction slowed down nationwide
Another factor that contributed to a high renewal rate was a slowdown in construction. Newly constructed apartments simply weren’t as readily available as they were a year ago. Nationwide, the share of available apartments constructed in the first quarter was 0.4 percent, down 40 basis points year-over-year.
Financing new construction became more difficult, as interest rates continued to rise. Several markets in the top 20 have had no new apartments come online during the first quarter, including Harrisburg, Broward County, Fla., Orange County, Calif. and San Diego.
Miami-Dade County remained the top spot for new development. Clocking in at the number two spot in the overall ranking (RCI of 112), 1.2 percent of available apartments were constructed during the first quarter. This new supply still struggled to catch up with incredible demand levels, as Miami also had the highest vacancy out of all 134 markets, at 97.1 percent—290 basis points higher than the U.S. rate.
Midwestern markets maintain strong position
Two Midwest multifamily markets retained strong spots in the top five. Grand Rapids, Mich., clocked in the fourth spot, with an RCI of 111—a tie with Harrisburg. The popular destination for new renters saw vacancy reach 96.0 percent in the first quarter, and 73.7 percent of renters opted to renew their leases.
Ranking fifth was Omaha, Neb., which had an RCI of 108. Demand remained high in the market, as vacancy clocked in at 96.4 percent, with a 66.6 percent lease renewal rate. Both Omaha and Grand Rapids saw demand surge and developers struggled to maintain a similar pace of new construction—the share of new apartments available amounted to 0.3 percent and 0.1 percent, respectively.