Orange County and San Diego Among Most Competitive Rental Markets in 2023
The rental market hasn’t slowed down as we come into the new year. Nevertheless, economic challenges and seasonal changes have led to a deceleration in some regions, while others have gained popularity among renters.
A recent RentCafe study revealed that rental markets in the Northeast climbed the ranks in terms of renters’ preferences, joining Sun Belt metro areas that maintained their strong appeal. The study analyzed the 134 largest rental markets in the country, using five essential factors to determine a competitiveness score: the average number of days an apartment stays vacant, market occupancy, the number of potential renters vying for an apartment, the proportion of renters who renewed their leases, and the fraction of available apartments that were completed this quarter.
A few areas along the West Coast continue to top the charts for the most competitive rental markets, including San Diego, Orange County, and Eastern Los Angeles County. None of these areas, however, fell within the top ten most competitive areas. This may indicate that the California rental market may be slowing down a bit compared to other areas of the United States.
Each metro area received a Rental Competitiveness Index (RCI) value based on these factors. In the first quarter, the national RCI stood at 60, signifying a moderately competitive market.
Few California cities topped the charts
The West Coast rental market is historically considered among the most competitive in the country, but only three California cities made it onto the top 20 so far this year. Orange County sits at number 11 with a competitive score of 89, 39 average vacant days, and 96.3% of apartments occupied. Further down the list is San Diego at number 13. San Diego’s competitive score is 87 with 34 average vacant days. Approximately 96.2% of apartments in this area are occupied.
Further down the ranking is East Los Angeles County at number 20. East L.A. County got a competitive score of 74, and 40 vacant days on average. The percentage of occupied apartments is 96.9%.
One interesting thing to note is that the West Coast cities on the list have the lowest lease renewal rates of all top 20 cities, with the lowest being East L.A. County at 41.7%. Although these markets may be dropping in competitiveness, renters are the least likely to renew each year.
North Jersey takes the lead in competitiveness
North Jersey, N.J., emerged as the most competitive rental market, surpassing Miami-Dade County at the start of the year. With an RCI of 115, nearly twice the national average, North Jersey attracted renters looking for appealing alternatives to Manhattan, such as Jersey City and Newark.
On average, apartments in North Jersey stayed vacant for 34 days, four days less than the U.S. average, and had 12 potential renters per apartment, four more than the national figure. The region faced an excess of demand in comparison to new supply, an issue that has also arisen in other major markets. A mere 0.3 percent of the total available apartments were completed in the first quarter, 10 basis points below the U.S. average. Additionally, the market ranked third in vacancy, at 96.6 percent, 240 basis points above the national rate.
Several other Northeastern markets climbed the ladder and joined the top 20, contending with desirable locations in the Sun Belt and Midwest. This group included Harrisburg, Pa. (RCI 111), Central Jersey, N.J. (RCI 87), Suburban Philadelphia (RCI 85), and Pittsburgh, Pa. (RCI 80).
Over half of renters nationwide renewed their leases
Across all 134 markets examined, 60.7 percent of renters renewed their leases in the first quarter. Although this figure was 400 basis points lower than the previous year, demand remained strong. It is important to note that the first quarter of 2022 represented the end of 2021’s extraordinary performance, so overall, lease renewal rates returned to a more typical level.
Central Jersey, N.J., boasted the highest lease renewal rate at 84.5 percent. Renters in this sought-after Northeastern region preferred to stay put rather than search for new apartments. Market occupancy reached 96.0 percent, 180 basis points above the national average. With only 0.6 percent of available apartments completed this quarter, the market may face a supply issue in the future. Central Jersey began the year with an RCI of 87.
Among the top five markets with the highest lease renewal rate, three others were located in the Northeast: Harrisburg with a 75.8 percent renewal rate, Suburban Philadelphia with 74.9 percent, and North Jersey at 72.2 percent.
Completing the top five was Grand Rapids, Mich., a Midwestern city, which posted a lease renewal rate of 73.7 percent.
Construction slows down across the country
One contributing factor to the high renewal rate was a decrease in construction. New apartments were not as readily available as they had been a year prior. Nationwide, the proportion of available apartments completed in the first quarter was 0.4 percent, a 40 basis point year-over-year decline.
Obtaining financing for new construction became more challenging as interest rates continued to rise. Several markets within the top 20 saw no new apartments completed during the first quarter, including Harrisburg, Broward County, Fla., Orange County, Calif., and San Diego.
Miami-Dade County maintained its position as the top location for new development. Holding the second spot in the overall ranking with an RCI of 112, 1.2 percent of available apartments were completed in the first quarter. However, the new supply struggled to meet the extraordinary demand, as Miami also recorded the highest vacancy among all 134 markets at 97.1 percent—290 basis points above the U.S. rate.
Midwestern markets hold strong positions
Two Midwestern multifamily markets remained in the top five. Grand Rapids, Mich., secured the fourth spot, tied with Harrisburg with an RCI of 111. This popular destination for new renters witnessed a vacancy rate of 96.0 percent in the first quarter, and 73.7 percent of renters chose to renew their leases.
Omaha, Neb., ranked fifth with an RCI of 108. Demand persisted in this market, as the vacancy rate reached 96.4 percent, and 66.6 percent of renters opted to renew their leases. Both Omaha and Grand Rapids experienced a surge in demand, but developers had difficulty keeping up with the pace of new construction—the share of new apartments available was only 0.3 percent and 0.1 percent, respectively.