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Low-Cost Suburban Apartment Submarkets Dominate

Blue-Collar Areas Have Strong Rent Growth

By Dave Sorter | Tuesday, May 23, 2017

 

When one discusses hot suburban apartment submarkets, thoughts usually turn to new, booming areas such as Frisco, TX or Glendale, AZ. In reality, the nation’s top-performing suburbs tend to be older areas dominated by what one might call “workforce housing.”

Of the top 10 suburban submarkets for effective rent growth in April, seven had an average rent level below that of the overall metro in which they are located, according to Axiometrics apartment market data, with margins as high as $1,100. The table below lists the top 10.



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Two of the exceptions to the rental market trends mentioned above are No. 1 South San Mateo in the San Francisco Bay Area and No. 3 Orangevale/Folsom near Sacramento – both of which are home to thriving tech companies who pay their programmers and analysts very well. The others, except for health-care-driven Englewood/Sheridan near Denver, are more blue-collar towns.



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Most of those areas are densely developed and are attracting very little, if any, new supply. Five of the top 10 have not received any new apartment development since before 2015, and three of them opened 154 or fewer units in 2016, but none in the years before and after. Only Englewood/Sheridan, with 733 new apartments coming to market from 2015-2017, and South San Mateo, with 2,609 in the same time frame, have consistent new supply.

And neither of those are the blue-collar suburbs we’re talking about.

The seven lower-cost suburban submarkets are fairly close to a major city, making commuting easy for residents who can’t afford the Class A luxury units most popular among developers. With increasing land costs, construction expenses and the like, developing Class B- or Class C apartments doesn’t make financial sense. The rents are too darn low to make a profit.

So, the nearby, less-expensive suburbs will be attractive to the large portion of the renter population who are more price-sensitive.

The Palmdale/Lancaster submarket near Los Angeles is known as the “aerospace capital of the world,” with defense contractors such as Lockheed Martin and Northrup Grumman building missiles, fighter planes and even the Space Shuttle in factories there.



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Central Arlington, between Dallas and Fort Worth, is home to a General Motors plant, the University of Texas at Arlington and Arlington municipal offices. This is the older part of town, south of the Dallas Cowboys’ and Texas Rangers’ stadiums and the Six Flags theme parks that attract entertainment dollars, and north of the shopping malls and new development that dot southern Arlington.



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Sacramento’s North Highlands submarket, as opposed to the metro’s Orangevale/Folsom area, has long been a lower-income, blue-collar area adjacent to the city. The home of the former McClellan Air Force Base attracts workers who can’t afford the more expensive rents inside the city.



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South Irving near Dallas is similar. Several miles away from Irving’s toney Las Colinas development, the southern part of the suburbs is near an industrial area and also attracts lower-paid workers from nearby Dallas-Fort Worth International Airport, as well as from the city of Dallas.



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The Nos. 7-10 submarkets on the list – Seattle’s Des Moines/West Kent, Jacksonville’s Orange Park/Clay County and Atlanta’s Clarkston/Stone Mountain – have many of the same traits as the submarkets above. They’re close to the city – Des Moines/West Kent is like Central Arlington, in that it is halfway between Seattle and Tacoma – are lower-income and are practically devoid of new supply.

Though these submarkets are performing well now, there is a caution sign ahead: If the rent level keeps rising at the current pace, residents could be priced out of the market without significant pay raises. That would decrease occupancy rates, which are above the metro rate in seven of the top 10 submarkets, which in turn would moderate rent growth.



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Dave Sorter

Dave Sorter

Journalist

Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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