Despite a cautious optimism permeating the commercial real estate industry, rent growth across the country is expected to slow through 2019. Not all markets are succumbing to this trend, however. Several late-recovery and secondary markets that have found their footing and these metro’s present ideal opportunities for new multifamily projects.
As we’ve noted in previous blogs, the surest bets for multifamily development today are metros that have been successful in diversifying their economies and attracting attention from expanding industries.
This quick rundown of five notable markets highlights the characteristics of cities that will remain attractive to developers heading into the near future.
1. Reno, Nevada
- 1Q 2019 Rent Growth: 8.3%
Reno has enjoyed steady rent growth since 2017 thanks to a strengthening late-recovery economy and built-up demand for multifamily. Vacancies remained low through 2018, encouraging apartment operators to increase rent at a healthy pace.
A similar pattern is expected to play out in 2019. The presence of the Tahoe Reno Industrial Center, home to facilities owned by Tesla, Blockchains, and Google, as well as the metro’s strong leisure and hospitality industry, will keep the economy healthy as the metro continues to pique interest from out-of-state investors. This economic stability, along with occupancy projected to exceed 96% through 2019, has encouraged apartment operators to keep rent growing at a strong 8.3% during the first quarter of 2019.
Additionally, developments expected to come online in 2019 will contribute to strong rising rents, including additional Class A properties like the 330-unit Lumina at Spanish Springs.
2. Tucson, Arizona
- 1Q 2019 Rent Growth: 7.6%
A rapidly modernizing downtown area ripe for development and a constant influx of affluent young renters, courtesy of the University of Arizona, has made Tucson an increasingly attractive multifamily market.
Thanks to a limited supply of Class A apartment stock, vacancies in Tucson through 2019 are expected to remain hovering below 95% even as new developments like the 100-unit mixed-use Rendezvous Urban Flats come online. That’s just one of the reasons rent growth increased by 7.6% during the first quarter of 2019. It’s a nice gain compared to the same period in 2018, when rent was accelerating by 5.5%.
A recent post-recovery surge in job growth has helped to keep multifamily vacancies low, especially among Class A assets. Multifamily investors working in the market have also grown fond of renovating aging properties and upgrading them with the latest amenities, another trend contributing to this year’s jump in rent growth.
3. Las Vegas, Nevada
- 1Q 2019 Rent Growth: 8.0%
Rent growth in the Las Vegas market has been steady since 2015, so the question for this metro is less about what is driving up rent growth and more about what makes rent growth in this market so resilient. Rent increased by 8.0% during the first quarter of 2019, improving over the first quarter of 2018 when rent grew by 7.4% and placing Las Vegas among the leading metro’s across the country for growth.
Job growth has remained steady in the metro, and helped to diversify and stabilize the economy beyond depending on the seasonal wax and wane of tourism employment. Thankfully, the city’s prime location in the Southwest and low cost of business has motivated logistics and manufacturing companies to relocate their operations to Las Vegas.
Another trend helping to keep rent trending upward is more families choosing to opt out of saving for a mortgage and the metro’s soaring housing costs. More of these families are choosing to rent, contributing to low vacancies in larger, amenities-filled units
4. Phoenix, Arizona
- 1Q 2019 Rent Growth: 8.9%
Several factors contributed to Phoenix ranking among the nation’s top metro’s for rent growth in 2018 and those trends are expected to holdover heading into this year. Rent growth was strong last year despite a large volume of multifamily units coming online, many in areas that have become increasingly built up over the past few years.
The metro’s recently diversified economy, one that now favors business services, health care, and tech companies, continues to draw renters to the Valley of the Sun that fill up Class A units. At the same time, Phoenix has become a major draw for outside investors interested in renovating properties in areas with high demand.
Rent growth accelerated during the first quarter of 2019, up to 8.9%, and improved over the same period last year, when rent increased by 6.2%. This recent growth is being driven by major centers of multifamily development like Downtown Phoenix, Old Town Scottsdale, and Tempe near Arizona State University.
5. Orlando, Florida
- 1Q 2019 Rent Growth: 5.5%
Despite a recent wave of 13,000 new units coming online since 2017, rent is expected to continue climbing at a strong clip in Orlando this year, up 5.5% through the first quarter. The metro’s talent pool is expanding rapidly. This has drawn attention attention from IT start-ups and engineering professionals and is helping to keep vacancies low in Class A properties as they come online. Overall, occupancy in the metro expected to improve through 2019, exceeding 97% by the end of the year.
The metro’s strong tourism industry and hiring in the leisure and hospitality sector, totaling 5,700 jobs added in 2018, has ensured that vacancies are across asset types have remained low. Another factor at play in the market is rising home prices. Costs have encouraged Orlando’s residents, especially those working in low-paying tourism jobs, to continue renting.
– Remy Albillar