The U.S. apartment market is red hot.
More than 320,000 new units projected to be completed this year – a 50 percent jump over 2015 –according to a study by apartment search website RENTCafé.
Strong demand from millennials, downsizing baby-boomers and those priced-out of homeownership is fueling construction—making it the biggest apartment development boom in more than a decade.
RENTCafé reports that 96.1 percent of the country’s apartments are occupied – and monthly rents reached a record high $1,296. (Although in the highest-demand cities, rents can be triple that).
That’s good news and bad news for renters. While renting is becoming more expensive, there is also more choices and amenities than ever before.
Here is a look at the top five cities experiencing the biggest construction booms:
5. Washington, D.C.
18,027 new units are expected for delivery in the nation’s capital by years end.
Finding an apartment here is competitive – apartments in the trendiest neighborhoods go quickly — and rent isn’t cheap. D.C. ranks fourth in the country for the most expensive apartments with an average apartment rent of $2,394, according to Rent Jungle.
“It seems like there are cranes everywhere,” said Jessica Evans, partner associate/Realtor at Real Living At Home in D.C. “I think they’re targeting millennials, who are moving into the city at a really fast rate.”
More than 1,000 new residents move to D.C. every month. Millennials are attracted to the high-income jobs and new, upscale apartments. A lot of new development is centralized in neighborhoods that a just few years ago were in a very transitional phase—such as West Waterfront and Capitol Riverfront.
“They were really economically depressed and have not had this density of housing,” Evans said. “A lot of people didn’t think of D.C. as having a waterfront, and those have been the areas that have seen the biggest booms in construction.”
4. Los Angeles
The City of Angels is expecting 20,205 new units this year.
Whether you’re attracted to the glamorous lifestyle of Beverly Hills or the beaches in Santa Monica, there’s an LA neighborhood for you. But a rental-housing shortage is making finding a pad more difficult than usual, especially for lower income renters.
Renting in LA is less affordable than any of the nation’s top 35 metro areas, according to Zillow. LA renters pay 48.9 percent of their monthly income on rent. New units are targeting renters with higher incomes, according to Steve Basham, a senior market analyst at the CoStar Group.
“Downtown has really been the development hot spot this cycle,” Basham said, “These are $2,000 and up monthly rents, so it doesn’t do a lot to address the housing crunch because it’s all targeting the top 25 percent of earners.”
There are virtually no concessions in the workforce or middle-class rental housing, because there’s so little new supply. Meanwhile high-end developments are going over the top with amenities.
“I’ve even seen some ideas floated for some really crazy stuff like proposals in downtown LA to have spaces for drone landing pads in anticipation of drone deliveries being more popular,” Basham said, “And there’s a new place opening up in Beverly Hills that’s going to offer on-site Botox treatments to residents.”
3. New York City
New York City has 21,177 new units projected this year. The aggressive development pace was partly fueled by developers rushing to qualify for a valuable tax break that was expiring.
“I think it’s probably the largest amount we’ve ever seen,” said David Maundrell III, executive vice president of new development for Brooklyn and Queens for Citi Habitats.
While Manhattan has the highest profile, people are seeking more affordable rents in neighborhoods in Queens and Brooklyn. The median rent in Manhattan actually dropped 2.8 percent to $3,300 in March.
What does the development boom mean for renters?
“It depends on the size of the building and aggressiveness of the owner,” Maundrell said. “Some owners can’t really afford to negotiate rents so they put in additional concessions, anywhere from one month to two months free on 12-month leases. Some are doing two months free on a two-year lease.”
Developers try to stand out by offering amenities like rooftop pools and high-end fitness centers.
“In places like downtown Brooklyn, you’re able to build 40- or 50-story towers, which offer amazing views,” Maundrell said.
Dallas is one of the country’s fastest-growing cities, boasting a hot rental market with 23,159 new units projected this year. More than 11,000 people are moving to North Texas each month.
“The biggest thing is massive in-migration,” said David Kahn, senior market analyst at the CoStar Group.
Kahn said Dallas offers the same quality of living as any other major metro area, but at half the expense.
“You can rent a really nice apartment in Uptown for $1,200 or $1,300 while in New York or LA, it’s upwards of $2,000 or $3,000,” Kahn said.
“For millennials priced out of Uptown, the rent discount on new properties in northwest Dallas, west Dallas and east Dallas is about $300 to $400 a unit,” Kahn said “It’s not as walkable… so maybe you have to bike to work or take an Uber to the bars.”
New developments are offering big-time amenities to differentiate themselves, and not just downtown.
“As we get more competitive and continue to improve our apartments [we’re] offering a luxury product that used to be limited to downtown; now you can get that quality in the suburbs,” said Sumner Billingsley, vice president of retail and multifamily development at Dallas-based Billingsley Co.
“We’ve tried to get creative by incorporating new technology like Dwello into some of our units and ozone pools,” Billingsley said.
The state of Texas does everything big and RENTCafé reports that Houston is projected to add 25,935 new units this year—more than anywhere else.
Greg Nino, a Houston real estate agent with Re/Max Compass, said Houston apartment operators are also offering extreme amenities to draw tenants.
“They’re coming with a lot more amenities and you’re paying for them,” Nino said. “Everything being built comes with more amenities than you can probably imagine—amphitheaters, movie theaters, gyms and pools – like a small resort but you pay for it.”
One project to watch is Market Square Tower, a 40-story, high-rise that will feature a rooftop glass-bottom pool and an indoor, half-court basketball court.
The average rent for a two-bedroom downtown unit is $2,430, according to Apartment List.
While rents are performing relatively well, some landlords are offering rent concessions amidst the oil slump and growing competition for renters.
“Sometimes they’ll provide a certain number of utilities or the first month’s rent for free—so different things they can do to be fiercely competitive,” Nino said.