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The Relationship Between New-Lease and Renewal Rent Growth

New-Lease Growth Dominates Top Markets

By Dave Sorter | Friday, May 5, 2017

 

Rent growth for new leases usually outperformed rent growth for renewed units in the strongest apartment markets during the first quarter of 2017, while the opposite was generally true for lower-performing markets, according to RealPage apartment market data.

Lease transaction data, including renewal rent growth, is now available to Axiometrics clients who upgrade to include RealPage Investment Analytics in their subscription.

New-lease rent growth has historically been much more seasonal than renewal rent growth, according to the apartment data. As the chart below shows, new-lease growth tends to peak in June and hit a trough in December. Meanwhile, renewal rent growth is relatively steady.



Source: RealPage
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Among Axiometrics’ top 50 markets, based on number of units, new-lease rent-growth rates have a much wider spread than the figures for renewals, the RealPage apartment market data shows. The spread between the highest first-quarter new-lease rent growth – Sacramento at 11.7% – and the lowest – Oklahoma City at -3.0% – was 1,470 basis points (bps). On the renewal side, the gap was only 560 bps between the high and the low, again Sacramento and Oklahoma City at 7.7% and 2.1%, respectively.

Three of the top five markets for combined rent growth, comprising both new-lease and combined figures, recorded higher new-lease growth than renewal growth. One other was almost even, though the renewal number was slightly higher, and in only one was renewal growth significantly higher.



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And, in all five of the top 50 markets with the lowest combined rent growth, renewal growth has a strong edge over new-lease growth.

 


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These lower-performing markets also have the biggest differential between new-lease and renewal rates, showing that the largest gaps are in metros where new-lease rent growth is suffering the most.


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This is very likely a supply and demand issue. Almost all the markets above are receiving a huge amount of new supply (relative to their size), and slowing job growth in these metros is minimizing the demand for apartments. DC is the job-growth exception, but even its increased demand is not enough to support the massive amount of new properties entering the market – especially when most of those new projects are of the Class A++ variety.

So, in the face of all the new competition, property owners and managers have to soften their new-lease rents. That competition sometimes trickles down to lower classes, as well.

Meanwhile, the metros with the highest new-lease rent growth tend to have a narrower gap between new-lease and renewal figures.


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The metros with the 10 lowest differentials are all among the top 14 for new-lease rent growth. Some of these markets, such as Sacramento and Riverside, are low-supply markets, while others have the job growth to accommodate the new units coming to market.

As might be expected, the national figures are in between the two extremes, with 4.0% new-lease rent growth in the first quarter and 4.8% renewal growth.  

 

 

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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