Rental Rates Are Creeping Up Slowly

Research firm Reis Inc. reported that both the national average asking rent (at $21.39 per sq. ft.) and effective rent (at $18.73 per sq. ft.), which excludes landlord concessions, increased 1.7 percent in the second quarter 2019 compared with one year earlier. Reis reported that rents at regional malls were up 0.2 percent.

The sector is seeing a “continued picture of slow, creeping rent growth in terms of both asking and effective rents that are pretty much growing in step around the mid-1 percent range year-over-year,” says Matthew Schreck, senior quantitative strategist at Ten-X Commercial, an online real estate marketplace. That’s slow compared to the last expansion in the early 2000s, when rents were growing in the mid-2 percent to as high as the upper-3 percent range, Schreck notes. But they’re still moving in the right direction.

 “Rents are growing across property types and across markets, and I think it has more to do with the fact that we’re in a longstanding, fairly robust economic expansion,” he says. “The unemployment rate is really low. Incomes are growing. People are spending their money and, in a sense, a rising tide lifts all boats.”

But the degree to which they’re lifted varies, Schreck adds. Some sectors and some markets have seen much stronger real estate recoveries in this cycle than others, and retail has been among the slowest to come back. He notes that the rate at which the rents are growing is a bit disappointing. “And it sort of begs the question of what would these [weaker] markets look like in the event of any kind of an economic downturn.”

Reis research reveals that rent growth in the second quarter was healthy in a number of metros, with eight boasting rent growth of 1 percent or more. Metros with the highest effective rent growth included Seattle; Nashville, Tenn.; Sacramento, Calif.; Oakland-East Bay, Calif.; and Louisville, Ky.

However, 19 metros posted an effective rent decline in the quarter, including Little Rock, Ark.; Kansas City; Omaha, Neb.; Lexington, Ken.; and St. Louis.