Introduction to the Shift in Apartment Renters’ Behavior
A notable trend is emerging in the apartment rental market, with a significant decrease in the number of renters choosing to move when their leases expire. Typically, around half of apartment renters in large urban areas opt to relocate at the end of their lease terms. However, recent data suggests that this number has dropped substantially, with some of the largest landlords reporting turnover rates as low as 30%.
Reasons Behind the Change
Several factors are contributing to this shift in behavior, including:
- More renters are choosing to stay in their apartments when their leases are up.
- Typically, about half of apartment renters in large urban markets move when their leases end, but some of the largest landlords are now seeing turnover at just 30%.
- There are a number of reasons for the change, including the cost of moving and an unaffordable for-sale market, among other things.
Benefits of Renting and the Current Market
Renting has its benefits, including being generally cheaper than buying a home and offering the freedom to move without significant hassle. This is why, historically, about half of apartment renters in large urban markets have chosen to move on when their leases expire. However, the current market dynamics are altering this trend.
Analysis and Insights
According to real estate analyst Alex Goldfarb at Piper Sandler, the low turnover rate is "striking." He attributes this change to several factors, including an unaffordable for-sale market, a lack of rental supply on the coasts, economic uncertainty, the cost of moving, and a shift towards suburban apartments that are larger and more comfortable. This shift benefits landlords, as they are seeing better pricing from renewals and improved cash flow due to lower turnover costs, which include repairs, painting, and cleaning.
Market Implications and Favorites
In the multifamily REIT sector, Goldfarb favors companies like Essex Property Trust, which has a significant presence on the West Coast. Equity Residential also benefits from its regional presence. The rebounds in cities like San Francisco and Seattle, driven by tech companies and artificial intelligence, have positively impacted real estate. However, the Sunbelt, which was a hot pandemic play, might face challenges if a recession leads to job losses, potentially affecting companies like Camden Property Trust and Mid-America Apartment Communities.
Market Trends and Projections
The multifamily market is showing signs of recovery after declines last year due to record levels of new supply. Rents are increasing, up 0.9% year over year in the first quarter, according to CBRE, driven by the strongest positive net absorption since 2000. This has pushed the multifamily vacancy rate down to 4.8%, below its long-term average of 5%. Experts like Kelli Carhart, leader of multifamily capital markets for CBRE, see this as a crucial turning point, signaling increased investment activity in 2025 as improving fundamentals drive investor confidence.
Conclusion
The shift in apartment renters’ behavior, with more choosing to renew their leases rather than move, reflects broader market trends and economic factors. This change benefits landlords through better pricing and lower turnover costs but also indicates a competitive and potentially challenging environment for renters. As the market continues to evolve, understanding these trends will be crucial for both investors and renters alike.
FAQs
- Q: What is happening with apartment renters?
A: More apartment renters are choosing to stay in their apartments when their leases are up, with turnover rates dropping to as low as 30% in some areas. - Q: Why are renters staying in their apartments?
A: Reasons include the cost of moving, an unaffordable for-sale market, lack of rental supply on the coasts, economic uncertainty, and a preference for larger, more comfortable suburban apartments. - Q: How does this affect landlords?
A: Landlords are seeing better pricing from renewals and improved cash flow due to lower turnover costs. - Q: What are the implications for the multifamily REIT sector?
A: Companies with a strong presence in regions like the West Coast are favored, and the sector is expected to see increased investment activity due to improving fundamentals.
