Apartment Rent Growth Shows Signs of Slowing in Sun Belt Cities

Florida Areas May Lose Lead in Rent Growth As Markets Cool

CoStar: Orlando, Florida, led the country in rent growth in July compared to a year earlier, but that pace has cooled since June. (Getty Images)

By Richard Lawson CoStar News August 3, 2022 | 4:29 P.M.

Apartment rent growth in Sun Belt cities is showing signs of slowing from the torrid pace over the past year, with Florida markets pacing the decline.

While rents increased at the 40 largest U.S. apartment markets in July compared to a year earlier, they were down or held steady in about half the markets from June, according to a report released Wednesday from CoStar Group's Apartments.com.

Half of the top 10 markets for year-over-year rent growth in July are in Florida. But some of those same areas also had the biggest decreases in rent growth since the end of the second quarter. Greater Orlando, Florida, held the top spot with the highest year-over-year rent growth in July with 16.2%, but that was down from the 18.7% growth it had as of June 30.

“Throughout the month of July, while multifamily yearly rents continued to perform well above historical averages, the deceleration of rent growth quickened at a time when markets typically post their best results,” said Jay Lybik, CoStar’s national director of multifamily analytics, in a statement.

Orlando is followed by Miami at 14.6% growth, down from 16.7% in June, and Fort Lauderdale at 13.6%, down from 16.2% in June. The other half of the top 10, Charlotte and Raleigh, North Carolina; Nashville, Tennessee; Salt Lake City; and San Diego, had declines from June as well. The report only tracked markets with 75,000 or more units.

"The deteriorating rent situation" in Sun Belt markets "highlights a significant collapse of demand in the sector" when new apartment projects are expected to be completed, adding 230,000 units in the second half of 2022, Lybik said.

New York City, though, could be a benefactor as people who moved to Florida temporarily are heading back, according to academic researchers tracking rental markets around the country.

More Slowing Expected

Major apartment owners expect rent growth to slow in the second half of this year after a strong first half of results that exceeded expectations, according to recent earnings reports from apartment real estate investment trusts. Some REITs increased their forecast for funds from operations, a key performance measure for REITs, for the year or held steady.

“We do anticipate that we'll see some year-over-year moderation in rent growth over the back half of the year as the prior year performance comparisons become more difficult,” Eric Bolton, CEO of MAA, the country's second-largest apartment owner, said on a recent earnings call. But he added that MAA, which has a large Sun Belt presence, sees “no near-term indications that leasing conditions are poised to change, and we expect the strong occupancy and rent growth trends to continue.”


Northern Virginia-based AvalonBay Communities disclosed in its second-quarter earnings report that it is buying more apartments in South Florida and raised its expected funds from operations for the year.


Adam Kaufman, co-founder and chief operating officer of rental property crowdfunding investment firm ArborCrowd, said by email that “we’ve known for some time that this level of growth would be difficult to sustain” yet remain ahead of historical trends averages and better than other commercial real estate sectors.


“Given this, multifamily remains incredibly attractive for investment, and we expect that demand will remain strong, continuing to drive performance. Of course, rent growth is only one component of a successful real estate investment and cannot alone compensate for other material fundamentals lacking in a deal,” Kaufman said.


Apartment.com’s report dovetails with the Waller Weeks & Johnson Rental Index created by a collaboration of researchers from Florida Atlantic University, Florida Gulf Coast University and the University of Alabama. The index measures whether renters are paying a premium or a discount in the country’s largest metropolitan areas based on historical averages of 3% to 5% annual growth.


Focus on Florida Rentals


The index, which trails a month behind Apartments.com’s data, shows that greater Miami-Fort Lauderdale once again was the most overvalued metropolitan area in the country, with renters paying a 20.6% premium over the area’s historical rental growth in June. Orlando renters were paying a 14% premium.


Those premiums, though, are down from the previous month's index. Miami was at 22.7% while Orlando’s was a touch higher at 14.6%. Other Florida markets saw declines in premiums as well.

Ken Johnson, an FAU economist, said in a June statement that the chief reason appears to be people returning to New York after living in Florida temporarily.

“Those COVID refugees placed a significant burden on the demand for rental units in Florida, and rents spiked to historic highs while New York became slightly more affordable,” Johnson said. “With those workers returning home, Florida should see a cooling in its rent hikes, and New York renters will again have to deal with much higher rates.”

New York City rent growth slowed some in July, according to Apartments.com’s report. Rent growth was 6% in the second quarter and 5.5% in July. The Waller Weeks & Johnson Rental Index shows renters paid a 10.85% premium in June, down from 11.43% in May. But Johnson said rents in the New York City area are poised to increase 23% by June next year.

In contrast, the San Francisco area’s rent growth increased from 4.5% in the second quarter to 5% in July, the Apartments.com report said. The Waller Weeks & Johnson Rental Index shows San Francisco renters now paying a slight discount in June of 0.48%, a reversal of the 0.58% premium in May. San Francisco is the only market with a discount.


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