Despite all the noise about real estate lows during the pandemic, sun belt regions in the United States are experiencing rent increase due to their, you guessed it, location.
“The consequences of remote work and traditional migration patterns to less expensive areas have started to affect rental rate growth. Cities that benefit from proximity to more expensive areas tended to see the largest increases in rent last quarter.”
CoStar’s daily rent series registers areas such as the Inland Empire, Sacramento, Las Vegas, Tucson, and Phoenix at the top of the list for rent increase. Being that they aren’t costly cities to live in, and their close proximity to expensive metropolitans, is proving to be a factor for rent growth.
But there are other factors allowing owners of mid-priced property to inflate rates at a faster pace. Atlanta, for example, is seeing industrial job growth which increases the need for “labor-force housing,” giving owners the chance to increase rent due to demand.
“Markets with healthy distribution sectors, a bright spot during the pandemic, also performed well. Indianapolis and Memphis, Tennessee, rank as some of the strongest markets for rent growth over the past few months. Atlanta and Jacksonville, Florida, also benefited from growing distribution sectors.”
The trend takes a bleak turn as sought-after coastal cities of San Francisco, Los Angeles, New York, and even Boston scatter the bottom of the spectrum. Remote work has taken many residents from these mega-hubs essentially sinking demand for rental units. San Francisco’s -6.5% rent loss registers as the worst among the entire nation, and is double the amount endured during the “Great Recession.”
By understanding the type of jobs that are prevalent in places like San Francisco, a tech-hub mecca, you begin to notice how high office-using employment was truncated by remote-work culture, which spurred tenants to move to inexpensive cities like Sacramento—or from Los Angeles to the Inland Empire.
In other words, there is no longer a need to live close to work.
“Supply-heavy markets, such as Austin, Texas, and Nashville, Tennessee, have also seen rent losses in spite of strong demographic trends and job markets that have held up relatively well compared to the national average. Most rent losses are concentrated in the urban core, where rent premiums are extreme. That has weighed on the ability of landlords to push rents.”