Asking Rents Surpass National Average in Southern Cities
By Chuck McShane and David Kahn CoStar Analytics February 9, 2022 | 2:07 P.M.
Sun Belt cities have long been magnets for population growth, and that trend has only accelerated over the past two years. A combination of better weather, fewer regulations and lower housing costs has attracted businesses and people to the South and West.
After two years of net absorption consistently outpacing new supply, though, the Sun Belt’s cost advantage is becoming less clear, at least for housing. Last year, average multifamily asking rents in Atlanta, Georgia; Austin, Texas; Phoenix, Arizona; and Orlando and Tampa in Florida all met or surpassed the national average of $1,557 per unit for the first time ever. Nashville, Tennessee, at $1,539 per unit, and Charlotte, North Carolina, at $1,476 per unit, are nearing parity.
Annual rent growth in these seven cities averaged 19.7% over the past year and 23.9% since the fourth quarter of 2019. By comparison, nationwide rents are up 11% year over year and 12.6% since the fourth quarter of 2019. While rents are rising everywhere, not all Sun Belt cities are facing the same looming milestone. The large Texas cities of Dallas, Houston and San Antonio were exceptions, with rents remaining below the national average and rent growth, though robust, less extreme. In South Florida hot spots Miami and Fort Lauderdale, rents have long been above the national average, on par with gateway cities.
The Sun Belt maintains clear cost advantages over many Northeastern and West Coast competitors. And rent growth in the Sun Belt is unlikely to stem the flow of migrants from New York and California cities, where average rents are $2,500 per month or higher. But rising costs could affect where within the Sun Belt newcomers and longtime residents choose to live.
Tertiary Sun Belt markets, such as Greenville, South Carolina, and Tucson, Arizona, have seen above-average annual rent growth — 12.9% and 16.1%, respectively — but average rents remain below $1,200 per month. And both have thousands of units recently completed or under construction. Similar midsize Southern markets such as Huntsville and Birmingham in Alabama and Memphis and Knoxville in Tennessee have also seen increases in construction and average rents below $1,200 per month.
As industrial employment growth continues in Sun Belt exurbs, more multifamily development is likely to follow. In Rowan County, North Carolina, on the exurban fringes of the Charlotte metropolitan area, for example, developers recently broke ground on the first large multifamily development there since 2009.
The affordability contrast between larger Sun Belt cities and established Midwestern cities has also become more evident. Average rents across the seven Midwestern cities with the largest apartment inventories are at $1,206 per month. While Midwest population growth continues to lag Sun Belt growth, the relative affordability of Midwestern metropolitan areas that have seen population growth, such as Columbus, Ohio, and Indianapolis, Indiana, could play to the Rust Belt’s advantage in some corporate-relocation and talent-attraction competitions. Intel’s announcement that it will spend $20 billion to build two semiconductor plants in the Columbus suburb of New Albany, Ohio, is one recent example. Rents in Columbus average $1,121 and have been growing at 8.1% per year.
Still, one of many Sun Belt cities’ advantages is the ability to quickly add housing supply, which could help absorb the surge in demand. Six of the top 10 cities for multifamily inventory expansions in 2021 and eight of the top 10 for units currently under construction as a share of inventory are in the Sun Belt, led by Nashville, which has a 12.2% expansion of inventory underway. A high proportion of construction in these metropolitan areas is in the suburbs, where single-family development is predominant.
And some Sun Belt suburbs are beginning to slow rezoning and approval processes on new multifamily building. Outright moratoriums are still few and far between, but as Sun Belt suburbs continue to boom, local government process may play an increasing role in development and construction.