The past two years have been anything but ordinary for the apartment industry. In a major trend reversal, once blistering-hot sunbelt markets are finding themselves at risk of deteriorating rent growth prospects, while secondary and tertiary markets across the Midwest and central regions of the country are persevering with steady rent increases.
The Sunbelt markets that are most at-risk are those which have a large share of units under construction. If economic pressures dampen demand in the near-term, these markets could be faced with the prospect of increased vacancy rates and downward pressure on rents. Across the country, there’s a shortage of housing units, and the long-term outlook is bright for the apartment industry in high growth markets. However, near-term pressures on these markets will change the calculus in how investors value assets in these markets.
Contrary to the double-digit rent increases experienced earlier this year in high-growth sunbelt markets, secondary and tertiary markets appear on much solider footing. A healthy balance between supply and demand is supporting steady rent growth. With many of these markets not expected to receive a wave of supply in 2023, the prospect of slow and steady growth looks promising for investors seeking lower volatility.
Check out our table below for select market analysis.