With Q2 2017 data finally in, we can take a fresh look at how rent dynamics have changed so far in 2017, and note some patterns in our forecasts. We have not materially revised our baseline assumptions this quarter. Our multifamily outlook calls for peak supply growth in late 2017 or possibly early 2018, and strong but slowing demand that will continue to slow growth in effective rents.
YOY Effective Rent Growth: Q2 2017 vs. Q2 2016
Source: CBRE Econometric Advisors, Q2 2017.
By metro, recent trends in fundamentals—and our forecasts—vary widely. Although every metro is different with respect to fundamentals, four main categories emerge when looking at historical performance and EA forecasts:
This is an eclectic mix of markets, but they have some clear similarities that help account for recent performance. Over the past several years, moderate demand has dragged vacancy down to very low levels. To date, there hasn’t been a lot of new supply. In the short term, supply is likely to slightly outpace demand in these markets, but with vacancy rates currently very low, EA is forecasting moderate rent growth for these markets.
These markets have been strong outperformers through the current economic expansion, as years of robust employment growth have greatly improved multifamily fundamentals. Now these markets are at an inflection point, where high completions levels are beginning to have an outsized impact on rent growth and vacancy. As a result, EA’s outlook for these markets is considerably less rosy than their historical performance.
In these two markets, rent growth is declining year over year—something we expect to continue in the short term—though for very different reasons. In Pittsburgh, noticeably weaker demand will likely continue to push vacancy higher as more supply comes online. In New York, supply and demand are in a rough equilibrium, but lack of affordability is becoming a concern and could begin to weigh on rents.
Most of the 44 EA markets not shown in the chart above are following paths similar to the national story, and their forecasts closely track that of our Sum of Markets as well. Supply is pressuring rents but demand remains steady.