Tech Hubs, Desert Metros See Rents Soften in November: Report

A view of homes and apartments in San Francisco, on June 13, 2018. (Justin Sullivan/Getty Images)

U.S. apartment rents dropped for the third straight month in November, easing back from this year’s record highs as leasing demand continues to weaken, according to newly released data.

While still lofty compared to previous years, effective asking rents for new leases declined 0.59 percent nationally last month, marking the largest cut since the pandemic lockdowns in April and May 2020, real estate software and data firm RealPage found.

Rents are falling the most in tech markets and desert metros. California’s Bay Area cities of San Francisco, Oakland, and San Jose, as well as the tech hubs of Seattle, Washington, and Austin, Texas, all saw rents drop by more than 1 percent. Among the nation’s larger cities, San Jose saw the steepest month-on-month decline of 1.7 percent as tech firms such as Roku and Twitter cut local jobs.

The desert metros of Las Vegas and Phoenix also recorded rent cuts of more than 1 percent month-over-month in November and are poised to become the first major markets to see year-over-year declines, after the apartment occupancy rate in both cities fell significantly over the past year.

November’s drop in rents was the third-largest since 2010, according to RealPage. “We’ve never before seen new-lease apartment demand freeze up during a period of solid job gains like it has this year,” noted Jay Parsons, the company’s head of economics & industry principals.

Parsons added that the United States is on course to end the year with the weakest net apartment demand since 2009, citing the impact of low consumer confidence and slowing household formation on would-be renters. Leasing traffic among prospective tenants has plunged throughout 2022 and last month was the weakest for any November in eight years, he noted.

That said, RealPage data shows that rents are still up by nearly 7 percent nationwide compared to last year, after the market surged in 2021 and the first half 2022. The average occupancy rate is still high at more than 95 percent, falling slightly from November 2019.

Median apartment rents in the 50 largest metros peaked at $1,781 per month in July of this year, easing to $1,734 as of October, according to Realtor.com. In a survey by the real estate listings website, three out of four renters who have moved in the past 12 months said they experienced rent hikes.

An unprecedented surge of new apartment construction should increase competition in the market and create new deals for middle- and upper-income renters. More than 917,000 apartment units were under construction across the country as of the third quarter, which is projected to boost the nation’s existing apartment stock by 3.4 percent, according to RealPage.