Compound Growth – July 1, 2024
According to a number of organizations that track these metrics, U.S. multifamily in general is going through a fallow period when it comes to rent growth. However, the adage that real estate is local bears repeating here. Moreover, when sizing up markets for possible investment, it’s instructive to gauge not just where growth metrics stand on a market-by-market basis, but also where they’re going.
A real estate analytics firm that combines real-time data with generative AI and machine learning, Markerr has just issued a report that provides a current snapshot and a longer-range forecast. That report finds that U.S. multifamily historical year-over-year rent growth was -2.4% in May 2024, representing the 13th consecutive month of negative Y-O-Y growth.
That’s a view of the U.S. as a whole. On a local level, the terrain is far more varied.
“Rustbelt markets are currently performing the best with -1.4% Y-O-Y growth and Sunbelt markets experiencing the worst current rent growth at -4.1% Y-O-Y,” according to Markerr. Led by Cape Coral-Fort Myers with a nearly 10% decline, the top five markets experiencing the largest Y-O-Y declines in rent are all in the Southeast or Southwest. Eight Florida metro areas are among the top 20 underperformers.
Looking ahead, Markerr’s quantitative rent growth forecast across the top 100 markets points to a 3.7% Y-O-Y increase over the next year. Further into the future, the forecast calls for a 2.7% five-year compound annual growth rate.
Over the next five years on a CAGR basis, the markets that Markerr categorizes as Tertiary are projected to outperform the top 100 average, “while Coastal and Sunbelt markets are projected to modestly underperform.”
On a five-year CAGR basis, the best performer will not be a fast-growing Sunbelt metro, according to Markerr. Instead, it’s projected to be Bridgeport-Stamford-Norwalk, CT, just edging out another Tertiary market about a three-hour drive west, Allentown-Bethlehem-Easton, PA/NJ.
Two other New England metro areas—Providence-Warwick, RI/MA and Hartford-West Hartford-East Hartford, CT—are also in the top 10, as is another Northeastern metro, Albany-Schenectady-Troy, NY. Four of the top 10 metros for projected CAGR growth are in the Carolinas, and the top 10 is rounded out by Knoxville, TN, which comes in at number four.
Markerr’s five-year CAGR chart of the projected best and worst performers reveals a wide assortment of growth trajectories. The aforementioned Bridgeport-Stamford-Norwalk and Allentown-Bethlehem-Easton metros are expected to achieve relatively linear growth rates to achieve their high CAGR scores. That’s the case even though their peak years of projected growth differ from one another, with the Connecticut metro seeing its best growth in year three and the Pennsylvania market hitting that mark in year four.
Conversely, a year-by-year look at the bottom 10 shows a mix of decent single-digit growth rates, more modest annual growth and year-over-year declines—all within the same metro. Bottom-ranked Ogden-Clearfield, UT is a case in point: two years of gains followed by two years of declines and a year of gains that are projected to be lower than the metro will experience in years one and two.
Looking at the single-family rental market in a separate Markerr report, a similar if distinct picture emerges. In contrast to multifamily, SFR nationally is still experiencing Y-O-Y rent growth, although the most recent Markerr report (issued in mid-June and reflecting May 2024 data) showed a 30-basis-point decline in annual growth between April and May.
On a regional basis, Rustbelt markets are performing the best with Y-O-Y growth at 2.2%, followed by Tertiary, Coastal, and Sunbelt markets at 1.9%, 1.8% and 0.9%, respectively. In fact, just two sizable Sunbelt markets—Birmingham and Charlotte—make the top 50 in SFR, although a handful of Tertiary markets in the top 50 are located in Sunbelt states.
“A number of tertiary markets are still experiencing well above average Y-O-Y growth rates,” according to Markerr’s report. Here as with multifamily, supply is likely a factor. Few if any of these lower-profile markets have seen anything like the development boom experienced in the major Sunbelt markets, whether the construction is multifamily or build-to-rent SFR.