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Some Under-the-Radar Multifamily Markets Outperform on Rent Growth

Limited Supply Additions Combine With Consistent Demand in Overlooked Locations

Multifamily Markets Outperform on Rent

This group of secondary markets have generated an average annual rent growth of 2.6%, significantly higher than the national average of 1%. Hartford, Connecticut, shown here, is leading the apartment rent growth in these secondary markets with a 4.5% average annual increase in rent. (Getty Images)

CoStar Analytics

July 2, 2024 | 8:41 AM\\

The 50 largest multifamily markets in the U.S. account for 75% of the sector’s inventory of 19 million units, and they routinely attract the most attention from institutional investors.

However, apartment rent growth in the next 20 largest markets in terms of total apartment inventory beyond the top 50 show an outperformance compared to the national average, a statistic that should merit greater notice from investors.

These secondary multifamily markets have generated an average annual rent growth of 2.6%, significantly higher than the national average of 1%. Hartford, Connecticut, is the leader in apartment rent growth, with a 4.5% average increase.

This can be attributed to a significant need for more supply and steady demand from renters. With a vacancy rate of just 5.0% and only 2,000 new units completed in the past three years, Hartford has achieved an average annual rent growth of 4.2% over the past five years, surpassing the national average of 3.6%.

Multifamily Markets Outperform on Rent

Furthermore, the rolled-up vacancy rate for these 20 markets stands at 7.5%, outperforming the national average of 7.7%.


The limited increase in new supply over the past four years has enabled these locations to better maintain balanced market conditions close to their long-term equilibrium. Charleston, South Carolina, with a modest total of 5,200 units under construction, and Colorado Springs, Colorado, with 4,000 units under construction, are the only locations with a ratio of units under construction to inventory greater than the national average of 4.1%, with both at 7.6%.

These 20 markets have an average population of 1 million and labor force of 500,000. In addition, the multifamily inventories range from 45,000 to 70,000 units. This demographic and economic depth has been strong enough to support consistent historical rent growth and possibly similar results in the future.

Additionally, the standard deviation of rent growth in these smaller markets is 2.8%, compared to 3.8% for the top 50 markets. This highlights their more stable supply and demand balance and ability to provide consistent and predictable rent growth.

While these smaller markets may attract less investor attention than the larger ones, their robust rent growth, lower vacancy rates, and balanced market dynamics could make them attractive investment opportunities. This is especially true considering that the capitalization rate spread between these smaller markets and the Top 50 has averaged 90 basis points higher over the past five years.

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