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RealPage Predicts Stronger Rent Growth in 2025
Despite a resilient economy and strong demand, rent growth in 2024 has been slower than expected, but projections for 2025 look more promising.
Good morning. Rent growth lagged in 2024 despite strong demand, but 2025 projections are looking promising. Plus, Brookfield tees up 36-year-old Connor Teskey as next CEO.
Today’s issue is sponsored by Viking Capital.
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Market Snapshot
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Rental Report
RealPage Forecast Points to Improved Rent Growth in 2025
Despite a resilient economy and strong demand, rent growth in 2024 has been slower than expected, but projections for 2025 look more promising.
The economy: In Q2 2024, the U.S. economy added over 532,000 jobs, contributing to a total of 1.3 million jobs created year-to-date. Significant employment gains are anticipated in New York, Los Angeles, Houston, Phoenix, and Dallas for the rest of 2024.
Supply and demand: The supply of new apartments in 2024 is forecasted to reach just over 629,000 units, but a 20% decline is expected in 2025, with approximately 497,000 units. Demand is projected to absorb over 612,000 units in 2024, with a 12% decrease expected in 2025.
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Growth in 2024: Despite strong demand, rent growth has lagged in 2024 due to external factors. RealPage’s forecast shows that 50% of the top 50 markets will see 2%-3% growth, 24% will see 1%-2%, and 18% will see less than 1%. Only Atlanta and Jacksonville are expected to have rent cuts over 1%.
➥ THE TAKEAWAY
Looking ahead: The forecast for 2025 is more optimistic. With weaker supply, strong demand, and a better economy, about 40% of the top 50 markets could see rent growth of over 3%. Around 55% will likely see 2%-3% growth and just over 5% may see less than 2% growth.
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✍️ Editor’s Picks
Succession plan: Brookfield CEO Bruce Flatt has picked 36-year-old Connor Teskey as his likely successor, with Teskey expected to gradually take on more leadership before becoming CEO.
Rate caution: Jamie Dimon advises the Federal Reserve to delay rate cuts amid concerns of potential inflation resurgence.
Empire: Tom Ford has expanded his property portfolio with a $250 million collection, including notable homes in Aspen, the Hamptons, and Palm Beach.
Rejected: Miami's Urban Development Review Board rejected two high-rise projects in Wynwood and Edgewater for being "out of scale" with their small lots and surrounding areas.
Lifeline: A local developer is set to acquire the stalled Oceanwide Plaza skyscraper complex in Los Angeles for $500 million, aiming to revive the $1 billion project halted in 2019.
Blocked: Haitong International seeks to block the sale of the unfinished Oceanwide Center in San Francisco, claiming exclusion from the foreclosure deal on the stalled $1.6B mega-project.
Declining: The Fed's July Beige Book reports weakening commercial real estate lending, with increased vacancies and cautious outlooks across several districts.
🏘️ MULTIFAMILY
Falling ratio: Apartment rent-to-income ratios continue to decrease, with Detroit, Chicago, and Pittsburgh having the lowest ratios and California cities like Riverside and San Diego the highest.
Shakeup: Project 2025's proposals to maintain single-family zoning and cut housing vouchers could disrupt multifamily development, impacting affordable housing and urban landscapes.
Foreclosure: Chetrit Group's 157-unit Forest View Apartments in Baytown, Texas, part of a $481 million distressed portfolio, faces foreclosure auction on August 6 due to loan default.
Filling the gap: Elliott Investment Management aims to form a new JV and finance $3B to $5B annually in housing projects, addressing the construction capital shortage.
🏭 Industrial
Revenue decline: Prologis sees an 18% revenue drop amid rising warehouse vacancies but is optimistic about future growth driven by AI-related data center demand.
Lending: Barings provided a $244 million loan to refinance a 6.4 million square foot industrial portfolio in Kansas City, largely leased to major brands like Amazon and Sam's Club.
Big deal: BlackRock Realty Advisors acquired a 1.2M SF Amazon-leased warehouse in Glendale, near Phoenix, for $128 million, marking the largest single-building sale in the area this year.
Mega leases: The first half of 2024 saw a significant rise in mega leases, particularly in the Inland Empire, with wholesale and retail sectors leading the demand for large industrial spaces.
Logistics platform: Brookfield Asset Management acquired a 14.6 million-square-foot light industrial portfolio covering 20 high-growth U.S. markets for $1.3 billion.
🏬 RETAIL
Makeover: Ben Ashkenazy is transforming San Antonio's Rivercenter Mall into an entertainment hub with attractions like climbing walls, shark tanks, and a revamped food hall.
Exit: Sephora is closing its Water Tower Place location in Chicago, adding to the retail vacancies on the struggling Magnificent Mile.
Expansion: American Ventures plans a large retail development in Elgin, TX, with a 90,000-square-foot anchor store on a newly rezoned 60-acre site.
🏢 OFFICE
Credit quality: Office bank loans are deteriorating, with significant exposure to non-performing loans and rising portfolio stress, highlighting potential challenges ahead for lenders.
Moving HQ: Indeed is relocating its Stamford headquarters to a newly renovated complex, downsizing from 200,000 to 124,000 square feet at The Link.
Heading to auction: Brookfield's 52-story Gas Company Tower in Downtown LA is set for a foreclosure auction on August 16, though it may sell earlier, with some showing early interest.
Acquisition: Robinson Oil invests $39 million in a commercial portfolio in South San Jose, diversifying its holdings with office and industrial properties resistant to remote work trends.
🏨 HOSPITALITY
Occupancy dip: Monthly room demand for economy hotels has been declining for 30 months, with annualized occupancy reaching 57.3% in June, down slightly from 57.4% in June 2019.
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📈 CHART OF THE DAY
June 2024 Rental Report: All Units Saw Waning Rent Declines
In June 2024, median rents for two-bedroom units dropped 0.3%, marking the 12th consecutive month of declines, with one-bedroom and studio rents also falling but at slightly slower rates than previous months.
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