Rents to rise at steady clip, forecast says

Apartment rents will go up again next year for the fourth consecutive year as the economy improves - good news for landlords but tough on renters.

Rents for apartments - which make up about half of all rental housing - will jump 4.6% nationally next year after a 4.1% increase this year, the National Association of Realtors predicted Monday in its commercial forecast.

Rents will keep rising, more than 4% a year for 2014 and 2015, says market researcher Reis.

"The pendulum has definitely swung back in favor of landlords, not renters," says Ryan Severino, Reis senior economist.

The stronger economy and lack of new supply continue to drive apartment rents higher.

The number of apartments under construction at the end of September stood at 194,000 units across the nation's 100 largest metro areas, says MPF Research.

That's more than double the level of construction in late 2010 - when it hit a low point - but it's still low by historical standards, says MPF Vice President Greg Willett.

At the same time, household formation is up 1.1% over last year's levels and will grow slightly faster next year, Severino says.

With a stronger economy, "more people move out of Mom and Dad's basement," he adds.

Apartment rent growth is slowing in some markets, MPF data show.

Through September, San Jose and San Francisco ranked as the country's rent growth leaders, MPF says. Effective prices for new leases were up 8% for the year in San Jose and 7.5% for San Francisco. That bested the 3.3% rise nationally and a more historical growth rate of 2.5% a year, Willett says.

But rents in San Jose and San Francisco had been growing at a 13% to 15% annual clip as of late last year, MPF says.

MPF expects national apartment rents to rise about 3% this year, down from 4.8% last year.

Willett says the stronger economy has emboldened renters to move more often. That affects how aggressive landlords can get with rent increases.

More apartment renters are also shifting to homeownership, Willett says. Single-family home prices are up this year, but still about 30% below their 2006 peak, and interest rates are at or near historical lows. That makes homeownership more affordable for more people.

Other large metros showing annual apartment rent increases in excess of 5% as of the end of September included Oakland, New York, Denver, Houston, Nashville and Columbus, Ohio, MPF says.

Despite the rising rents of recent years, rents nationally are up only 5.3% from where they were in October 2008, says market researcher Axiometrics. That's due, in part, to rent declines in 2008 and 2009.

The multi-family sector is the strongest part of a slowly improving commercial real estate market, the National Association of Realtors says.

NAR's forecast calls for industrial, office and retail rents to rise 1.4% to 2.8% in 2013 and 2014.

The demand for commercial space will gradually rise with an economy expected to grow 2.5% next year, modest job growth and no fallout from the tax increase and spending cut challenges facing congressional lawmakers, says Lawrence Yun, NAR chief economist.

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