Apartment Renters Experience Unprecedented Changes: What’s Causing This Striking Trend?

Renting comes with numerous advantages, making it a popular choice among individuals, particularly in urban areas. Typically, renting is more affordable than purchasing a home, and it provides the flexibility to relocate with relatively little hassle. Historically, about 50% of apartment renters in major urban markets have chosen to move once their leases expire. However, recent trends indicate a significant decline in this turnover rate.

Real estate analyst Alex Goldfarb from Piper Sandler has noted that many large landlords are experiencing turnover rates as low as 30%, a stark contrast to the typical 50% average. Various factors contribute to this unique situation, including the high costs of buying homes, limited rental availability, and general economic apprehension. Additionally, the expenses associated with moving and a growing preference for suburban rentals—often larger and more comfortable—play a role in retaining tenants. The reduced turnover has allowed landlords to negotiate better prices for lease renewals, as tenants are increasingly reluctant to leave.

This trend also enhances landlords’ cash flow due to decreased turnover costs, which often encompass repairs, cleaning, and painting between tenants. Goldfarb expresses a favorable view of multifamily REITs like Essex Property Trust and Equity Residential, given their substantial presence on the West Coast. The resurgence of cities like San Francisco and Seattle, bolstered by advancements in technology and artificial intelligence, has further aided real estate performance. Conversely, he holds a neutral stance on the Sunbelt region, which previously thrived during the pandemic but may face challenges in potential economic downturns.

Overall, the multifamily market is showing signs of recovery after a decline last year. According to CBRE, rents have begun to rise again, increasing by 0.9% year over year in the first quarter. This growth coincides with the highest net absorption of occupied units since 2000, alongside a decrease in the multifamily vacancy rate to 4.8%. These trends suggest a turning point in the sector and could encourage increased investment activity in the coming years.