Very Little Premium for Class A Units in These Apartment Markets

by   Julia Bunch
  Posted   June 19, 2024
  in   Rent Growth Rate

Across the U.S., apartment prices vary based on product class. Class A units – the most high-end, professionally managed apartment units nationwide – have a monthly rent about 28% higher than their Class B counterparts. In several major markets across the nation, however, that delta is much smaller.

Class A apartment units had an average monthly rent of $2,298 as of May, according to data from RealPage Market Analytics. That compares to prices that are about $500 less for Class B units with an average monthly rent of $1,795 as of May, resulting in a 28% rent premium for Class A units nationwide.

Two major markets, however, boast a Class A premium at about half that rate. In Portland, Class A rents run less than 13% higher than Class B prices. And in Orlando, Class A rents run less than 15% above Class B rates.

Markets that registered Class A premiums under 20% include Las Vegas, Anaheim, Denver, Jacksonville, Richmond, Riverside and San Diego. A couple of these markets – Orlando and Jacksonville – posted some of the deepest rent cuts nationwide as of May.

This small delta between Class A and B rents supports an economist theory called filtering. In high-supply markets where rents on new leases are being cut or offered with deep concessions, would-be Class B renters can now afford a Class A unit with relatively little strain to their budgets. That creates availability in more affordable Class B units, which may then be snapped up by would-be Class C renters who, again, have seen rents compress. All this creates more vacancy at the bottom of the price spectrum, increasing availability of affordable units in a given market.

On the other end of the Class A premium spectrum, only one major market nationwide posted Class A rents more than 50% higher than Class B rents. Newark’s Class A rent hovered just below $4,000 in May, compared to about $2,500 for Class B units. In West Palm Beach, St. Louis and Cleveland, Class A rents towered about 45% higher than Class B rents.

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