February 2018

VeryApt National Rent Report

Analyzing downtown luxury 1BR rent price trends

Market Overview

The VeryApt Downtown Rental (VDR) Index is up just 0.3% month-over-month. Even though median rents increased in high-rent markets, prices are seasonally soft. As a frame of reference, many rent prices are lower than they were in October, when many properties start offering deep discounts to move remnant summer inventory.

Rents fell for lower-priced luxury units. While incremental discounting in January was uncommon, the price drops that did occur were mostly in the bottom half of the market.

Unit absorption is an issue. The total number of units on the market declined only slightly month-over-month even with aggressive prices remaining in place from Q4. Price increases are often purely the result of timing rather than inventory positions; this is particularly true with newer construction.

As Amazon HQ2 competition heats up, it’s hard to find Group 1 and 2 cities that can compete with Seattle on luxury rent price entry points and quality. It’s worth noting that despite all the press around Seattle’s increased cost of living over the past few years, luxury rents continue to see relief due to new construction. Only Chicago and Philadelphia in Groups 1 and 2 can offer $1,800/month luxury downtown 1BRs, but they often are not the same quality as units renting in the same price range in Seattle.

VeryApt Downtown Rental Index

City Analysis

Group 1

Ultra-High Rent Markets: Median Rent Above $2.6K
Price increases in Group 1 were driven predominantly by Queens and Boston, with only slight relief coming from San Francisco on the value-end of pricing. Seasonally, prices are soft particularly in Manhattan in San Francisco, but it appears that most properties without large availability issues are unwilling to dig deeper on discounts to start 2018.
Group 2

High Rent Markets: $1.8-2.6K Median Rents
Group 2 markets continue to offer competitive prices but, like the ultra-high rent markets, have made a clear effort to raise rents, even if that means having more inventory than property management would prefer. Given the large 2018 pipeline for DC, Chicago, and Philadelphia, this could result in even deeper discounts in 2018 than we saw in 2017.
Group 3

Medium-High Rent Markets: $1.6-2K Median Rents
Rents in Portland, San Diego, and Miami all declined, mainly due to inventory issues. Portland properties are particularly distressed. Unlike higher-rent markets, property managers are willing to continue deep discounting to move remnant units opportunistically in advance of the summer.
Group 4

Medium Rent Markets: $1.1-1.6K Median Rents
Most medium-rent markets have normalized and seem to have found comfortable price points to start 2018, resulting in minimal discounting. That said, deals in Baltimore and Richmond for top-quartile properties were prevalent, continuing a theme that there may not be enough ulta-luxury renters in these markets to sustain the high-end projects that have opened in the past 2-3 years.

Interesting Trends

DC Renters likely to benefit in 2018: If the start of the year is any indication, Washington DC is going to be very competitive in 2018. There is a large pipeline of new construction, and traditionally strong neighborhoods like Dupont Circle have significant inventory issues. There is almost always one or two properties offering extreme discounts each month, meaning that properties without a lot of inventory on the market are still struggling to move their last few units given these competing discounts. This type of price competition is only going to intensify as new properties come onto the market, though it’s hard to tell if that will be in the form of 1-2-month free concessions or be reflected in lower listing prices.

The Boston market is stable, but renters are not moving into empty buildings even at low prices: The extreme seasonality in Boston means that some new construction have a large amount of availability almost half a year after peak season. Even with deep deals, renters seem unwilling to move into a $3,000/month unit when they know there are another 30 empty 1BRs in the property. Flexible renters are definitely getting deals on West End and Theater District properties, but it will be interesting to see if these prices remain steady closer to the summer months.

Weak unit absorption is an issue in Seattle: The steady flow of new construction means that many large luxury properties still have many available units. These properties are offering deals to attract the downtown Amazon and Microsoft renters who alternatively might have rented units farther from downtown or closer to mid-tier in quality. Even though luxury entry points are still high at $1,825/month, renters are typically getting a really good value for that price.

Chicago remains a discount-driven market: While prices have come up slightly since Q4, $2,000/month units in River North that would have been $2,500/month a year ago are still quite common. Luxury properties are having a hard time increasing prices, and new construction will likely make this summer even more challenging for building management than last year was.

Deep discounts are getting rarer in Philadelphia, but inventory issues are a good sign for summer renters: Philadelphia properties seem to have reduced their extreme discounting in anticipation of the rush of grad student acceptances. That said, many properties that increased prices have worse inventory positions than they did in December 2017, so it will be very interesting to see if this posturing ends up forcing some of these buildings to discount even deeper than they did in Q4 of 2017.

Other rent reports