Rental Market Forecast 2016: The West Leads in Rent Growth

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If you’re an agent who works with rentals, or simply an agent who likes to stay informed about the real estate market as a whole, you’ll be interested to read about some bold predictions for the year ahead.

The Yardi Matrix Winter 2016 Multifamily Outlook is exposing some of the trends in the U.S. rental real estate market for the year ahead.

The hot topic this year is rent growth. Over the past few years, the yearly rent rate growth soared beyond 6% nationally.  Will this continue in 2016? Yardi Matrix projects that 2016 will be another year of climbing rents – a 4.6% increase nationally — led by many of the same hot markets that produced increases in 2015.

 

2016 rent growth forecast by city chart

The West leads in forecasts for the greatest rent increases in 2016

The top 4 culprits are the Western cities of Denver, San Francisco, Portland and Sacramento. Apartments for rent in Denver are expected to see a whopping 11.2% price increase. Already outrageously expensive, San Francisco rentals are predicted to take a huge 11% leap. Leasing an apartment in Portland will suffer a painful 9% cost increase. These markets are known tech company hubs that offer the lifestyle and jobs that attract Millennials, the primary renter-aged generation.

Following closely is Sacramento, which benefits (so to speak) from the proximity to the hot San Francisco market. Rental apartments in Sacramento are likely to see price increases as high as 8.8%. Fifth on the list is the Southern city of Austin, which is known for attracting a young, highly educated workforce. Rents for apartments in Austin are anticipated to jump 8.0% this year.

Key factors:

  • Economic Expansion: During 2016, forecasts call for moderate U.S. GDP growth and the creation of roughly 2.5 million jobs.
  • Strong Renter Demand: The large Millennial and Baby Boomer generations are expected to drive demand. Through the end of this decade, Millennials remain the main players, supported by promising job prospects. Boomers are increasingly likely to rent as well, for reasons of finance and convenience.
  • Moderate Supply Growth: Rental development project completions across the 111 markets Yardi Matrix tracks will total 335,000 apartments for rent expected to hit the market in 2016. New stock is needed given the robust amount of demand from new households, the exceptionally high occupancy rates in most metros, and the growing problem of affordability.
  • Healthy Capital Markets: The flood of multibillion-dollar investment capital into U.S. multifamily real estate is expected to continue.

For real estate professionals, the question remains whether rising rents will give Millennials a nudge toward homeownership this year. An improving economy, job growth, and rent affordability in some markets may result in a share of renters looking to purchase a home in 2016.

RENTCafé and Yardi Matrix, our affiliated companies, are specialized in the apartment market and cater to rental property owners and renters. 

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Author
Nadia Balint is a senior creative writer for RENTCafé. She covers news and trends in residential and commercial real estate and their impact on our everyday life, including rental housing, for-sale housing, real estate development, homeownership, market reports, insurance, landlord-tenant laws, personal finance, urban development, economy, sustainability, and social issues. Nadia holds a B.S. in Business Management from Northeastern Illinois University in Chicago. You can connect with Nadia via email. Nadia’s work and expertise have been quoted by major national and local media outlets, including CNN, CNBC, CBS News, Curbed, The NY Post, The Chicago Tribune, The Denver Post as well as industry publications, such as GlobeSt, Bisnow, Inman News, Multifamily Executive, and The Commercial Real Estate Show. Nadia also wrote for Multi-Housing News, Commercial Property Executive, HubSpot, and more. Prior to entering the real estate industry, Nadia worked in the legal field, where she gained over 10 years of experience in business, corporate, and real estate law.

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