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  • Laura Kusisto - WSJ

Apartment Rents Edge Higher

Third-quarter prices rose 2.9% from a year earlier, but tenants can still find deals in major metro areas

Apartment rental prices edged higher in the third quarter, but deals for renters still abound in major metro areas across the U.S. as landlords brace for more supply in the months ahead.

Apartment rents rose 2.9% in the third quarter from a year earlier, up from 2.5% annual rent growth in the second quarter, according to real estate analytics firm RealPage Inc. A strong economy with better wage growth helped boost demand for apartments. So did a weak home-sales market, as tight supply may have prompted more renters to put off buying.

“There definitely doesn’t seem to be the pressure to buy that was there a little bit earlier,” said Greg Willett, chief economist at RealPage.

The rental market has still slowed significantly from a few years ago, when rents grew by 5.2% in the third quarter of 2015. But Mr. Willet said that “an upward blip rather than a downward blip” shows at least that the slowdown isn’t accelerating.

The share of occupied apartments during the third quarter rose to 95.8% in the third quarter from 95.4% in the second quarter, according to RealPage.

Economists had expected the third quarter, which is typically weaker than the busy spring leasing season, to be even weaker than the second quarter. The stronger-than-usual fall market is good news for landlords, but Mr. Willett cautioned that the next six months will still be challenging, with some 150,000 units hitting during the winter months when leasing is typically sluggish.

“It’s still going to be tough to lease up those units,” he said.

In Oakland, Calif., developers are bracing for more than 6,000 new units to hit the market in the coming months.

John Protopappas, president and chief executive of Oakland-based Madison Park Financial Corp., said that is the most new supply the area has seen in his 35-year career. “We’re expecting it [the market] to get very soft,” he said.

Mr. Protopappas said he recently leased apartments in a 162-unit building for 15% to 20% under market rate. “We just wanted to get ahead of this,” he said. His buildings have been offering four to six weeks of free rent, and he said owners will likely have to increase that to eight weeks.

The strongest rental markets remained concentrated in the Sunbelt, which lagged behind markets in the Northeast and West during the early years of the recovery but are now catching up. Rents grew 6.6% in Las Vegas and 6.5% in Orlando, Fla., in the third quarter compared with a year ago.

In contrast, the worst markets in the country are places that were once some of the hottest markets in the country and where developers have flocked to build new supply. Those include Nashville, Tenn., at 1.8% annual rent growth and Seattle. New York and Portland, Ore., which all had 1.7% annual rent growth.

The apartment vacancy rate increased to 4.8% in the third quarter from 4.7% in the prior quarter, according to Reis Inc. Meanwhile, the average rent increased 4.2% from a year earlier.

Barbara Byrne Denham, a senior economist at Reis, attributed stabilization in the rental market to the tax bill that passed last December. That bill almost doubled the standard deduction for individual and joint filers, making it less advantageous for most homeowners to itemize and take the mortgage interest deduction.

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