Following 2022 Peaks, Urban Core Apartments Lose Pricing Power

Pricing power has waned recently across the U.S. apartment market, as new supply has put downward pressure on rents. Some urban core submarkets, however, have experienced a more extreme loss of pricing power in the past year.

In the U.S. overall, annual effective asking rent change has flattened, with negligible growth of just 0.3% in the year-ending August 2023, according to RealPage Market Analytics. This was quite a change from the double digit rent growth of 10.6% just a year ago.

Among the nation’s largest 50 apartment markets, every single urban core submarket has lost at least some pricing power in the past year, though most of them have not suffered a downturn as deep as what was seen in the U.S. overall.

However, a few key urban cores – mostly located in the South region – are suffering a worse fate. Many of these areas logged historical peaks in rent growth in 2022 and are now seeing a notable course correction.

Downtown Salt Lake City/University is the urban core that has lost the most pricing power during the past year. In the year-ending August 2023, in fact, effective asking rents were cut 6.5%, the worst showing among urban cores nationwide. This performance was quite a shift from annual growth of 15.2% seen just a year ago. Putting downward pressure on rents, Downtown Salt Lake City/University also saw one of the nation’s largest inventory increases among urban cores in the past year, as the delivery of over 2,000 units increased the existing base here by 10.5%. In fact, supply pressure across much of the Salt Lake City apartment market pushed occupancy down to a decade low in recent months, giving operators little choice but to pull back on pricing.

Other urban cores with deepest rent cuts in the year-ending August 2023 were Central Nashville and Midtown Atlanta, with annual price declines of roughly 4% to 5%. Contributing to rent correction in Central Nashville, apartment developers completed more new units here than any other urban core nationwide in the past year. Over 3,900 units were delivered in Central Nashville in the past 12 months, increasing the existing inventory base by 15.1%. Meanwhile, the inventory increase in Midtown Atlanta was also solid at 7.8% in the past year. In general, both Atlanta and Nashville have been headliners for new apartment supply in the past five years or so, which has triggered easing market fundamentals in these Southeast markets in recent months.

Several Florida urban cores have likewise lost pricing power in the past year. This is not surprising given the extreme rent growth Florida apartment markets experienced in the past few years, driven by population influx and a housing shortage. But now that new delivery volumes have increased, and the market has had time to settle, it’s not surprising to see pricing in Florida come down once again.

Downtown Miami/South Beach is the only urban core on this list still seeing notable rent growth in August 2023. Though, the 2% increase in the past year is a significant downgrade from 23% growth this area saw in the year-ending August 2022. Back then, Downtown Miami/South Beach was the nation’s best performing urban core.

Other urban cores that saw nation-best pricing back in August 2022 were Northwest Durham/Downtown, Charlotte’s Uptown/South End, North Greensboro and Fort Lauderdale, where rent growth topped 16%. Of note, North Greensboro and Fort Lauderdale are the only two urban cores seeing essentially flat rent change in line with the U.S. average in the year-ending August 2023.