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May 17, 2024

Rent Cuts Particularly Acute for Class B and C Apartments

As featured in “GlobeSt.com
Richard Berger, GlobeSt,  16 May 2024

 

Some fast-growing submarkets are seeing the deepest apartment rent cuts amid their Class B and C product, according to a new report from RealPage.

It’s not surprising to see that price declines were the worst in the year-ending Q1 in areas where the most, new apartment supply was delivered, the report said, or that rents increased in submarkets with minimal new supply.

“What might be surprising is that it was not the Class A stock – receiving the most competition from new supply – that saw the steepest rate cuts in the past year,” according to RealPage analyst Kim O’Brien.

She said that Class A prices increased for the most part across the spectrum, except for extreme cases, in submarkets where deliveries amount to more than 10% of existing stock.

But even there, rent cuts in the year-ending Q1 were moderate at 2%, according to data from RealPage Market Analytics.

It was in Class B (-3.2%) and C product (-4.7%) where price declines were steeper.

Alternatively, in submarkets where new supply was minimal, accounting for less than 1% of existing stock, Class A product saw notable rent growth of 2.6%, RealPage found.

The other product classes in these lower-supply submarkets also logged price increases but at more moderate rates.

Nationally, Yardi Matrix reported that rents climbed for the second straight month in April and approached peak levels. Rents increased by $6 in April to $1,725, up $12 year-to-date – only $2 off the all-time high of $1,727 set last summer.

Jeff Holzmann, Chief Operating Officer at RREAF Holdings, tells GlobeSt.com that rent prices, like any economic variable, are set by supply and demand.

“The past few years – and in some metros even decades – were notable for financial gains and strong opportunities in the class B and C markets, and sometimes even with core-plus strategies in B and C assets in class A locations,” he said.

“But there’s no denying that the new influx of capital expenditure was focused on renovating, upgrading, and increasing occupancy in class B and C markets. New construction is almost always considered class A at the onset.”

These years of investment focus mean that more supply of that product became available, and competition increases, Holzman said.

“Pressure to have residents renew leases means more concessions and better experience for the consumer. The industry is seeing a short-term focus on higher class product in big metros. But the population shift from coastal large cities to more suburbs style living in-land (and Florida) seems to suggest that more supply can be absorbed in the class B and C markets for years to come.”

 

Thank you, GlobeSt.com, for including us in the conversation about Class B & C apartments. To read the full story, please click here.