2016 Rental Rates Expected to Rise 8%

For the seventh time in as many years, Rent.com has released their Property Owner and Manager Market Report. The survey reveals current trends and predictions for the future of the U.S. rental market as reported by over 500 rental property managers. In addition to confirming the seemingly universal rent increases which have been seen in the past year, managers are also predicting a further increase of 8% for the coming year!

Perhaps most interesting was the report's finding that vacancy rates are at their lowest point in nearly 20 years, coming in at 6.8% in the second quarter of 2015. You would have to go back to Q4 of 1985 to find a lower quarterly vacancy rate (6.7%). The 6.8% rate is also remarkable in how fast it has fallen, down from 7.5% at the same time last year. In fact, 46% of rental managers reported a decrease in vacancies in the past 12 months. Rent.com notes that this trend began in 2009 when vacancy rates sat at a lofty 11.1%, with steady decreases in every subsequent year.

With such low vacancy rates, landlords are having no trouble filling empty units. In fact, just 13% reported an increase in time to convert leases, compared to 33% who reported faster times. Because of the high levels of competition, 55% of managers felt less likely to offer concessions in order to fill a vacancy.

Surprisingly, the majority of property managers (56%) have not reacted to the high demand by raising their standards for new tenants; unsurprisingly, they have raised their standards for prices, with an overwhelming 88% reporting increasing rent in the last 12 months. A majority (53%) agreed that they would rather find a new tenant at a higher rent rate than negotiate and resign an existing tenant. Managers also confirmed that high demand and low inventory were the primary factors driving these increases (64%), while property maintenance and remodeling fees played a secondary role (44%).

Although it has already been happening for some time, this trend of increasing rental prices shows no signs of slowing down. 68% of property managers expect to increase rates even further in the next year, by an average of 8%! In last year's report, managers only predicted a 6% increase, showing that, if anything, the trend will actually accelerate compared to the recent past.

Who are the people driving this huge demand for rental units? Millennials may be a popular first guess, and indeed 45% of managers have noticed an increase in millennial rental applicants. However, a greater proportion of managers (54%) reported that previous home owners are seeking rental units in higher numbers than before. This represents a small gain from the 50% reported in 2014.

Finally, increasing numbers of renters are holding on to their current rental by renewing their leases rather than seeking a better option elsewhere (29% in 2014 vs 34% in 2015). Although this undoubtedly contributes to the observed shortages in vacancies, renters cannot be blamed for staying put, considering the bleak rental landscape.

Source: 2015 Rent.com Rental Market Report