Apartment Rents are (Still) Going Up!
Maybe more slowly than a few months ago, but rents are still rising.
Rent growth in the Detroit metropolitan area has been pretty significant over the past few years — 4% annual increase in 2011, 5% annual increase in 2012. 2013 is shaping up to be less dramatic, however, with average rents increase only 2% over last year.
If you break the market down, you can see that there are a few places in metro-Detroit that are sustaining the same kind of rent growth they had last year. In particular, the urban core leapt upward by an amazing 6.7% in the Rivertown, Midtown, and Downtown areas. The Novi/Livingston County area was up a healthy 4.5%, and the Farmington Hills/West Bloomfield market beat the average at a clean 3.0%.
The question is, why is rent growth slowing in the rest of the metro area? We’re below the national average in rent growth now — good for tenants, not so much for landlords.
Occupancy isn’t an issue — last year, 95.7% of all rentals were occupied; this year we’re at 95.9%. So it’s not that there’s a dearth of tenants. It’s not that there’s suddenly excessive empty rentals on the market, either — there were only about 600 new units and 600 ‘ongoing’ units added over the past year. That’s not enough to cause the kind of slowdown that we’re looking at.
A Problem of Economics
What we do have happening in Detroit right now is an economic slowdown. We’re not shrinking like we were in 2008-2011, but last time we saw 5% rent growth annually we were also adding 50,000 jobs/year. In 2012 we saw that level of rent growth but we only added about 10,000 jobs — so the rent growth was fundamentally unsustainable.
Fortunately, rent growth is going up — it seems that the third quarter’s low numbers were probably a short-term blip rather than beginning of a trend. It’s doubtful that rent will get back up to the 4% numbers we saw last year, but it’s fairly certain that we’ll see it nudge upward again in the fourth quarter.