Rent growth in Class A apartments has rebounded from cycle lows, and now the luxury segment no longer lags for rent growth, RealPage reports.
Rents for Class A apartments rose 3.2 percent in 2018, the largest annual increase in that segment since mid-2016. Class A rent growth outpaced that of Class C units (2.9 percent) at year-end 2018 for the first time since 2015. The middle-market Class B units still led, with 2018 rent growth of 3.5 percent.
Traditionally, the high-end Class A product line has outperformed both of the more affordable asset classes where it concerns annual rent growth. At the end of 2012, however, consistently heavy supply additions took a toll on these units, and the performance gap started to close. In early 2016, rent growth in the Class A stock fell below the increases in the nation’s Class B and C counterparts, and remained there until recently, when the expensive product line managed to pull itself out of the bottom rank.
Recent Class A improvement is partly because of a temporary lull in completions toward of the end of 2018. Annual completion volumes fell below 288,000 units in 2018, the lowest level since mid-2016. By comparison, annual completions got as high as 319,000 units in Q32017, and a similar number is expected in 2019.
With Class A units recovering quickly in the second half of 2018, the rent growth spread between all classes has narrowed. At the end of 2018, the difference between the highest-performing segment (Class B units) and the lowest performing (Class C) was 60 basis points (bps), continuing a two-year trend of spreads within 100 bps. Earlier in the current economic cycle, the delta between the fastest-growing asset class (historically Class A) and the slowest growing (historically Class C) has been as much as 450 bps. – Julia Bunch, RealPage