Commercial Real Estate News
Sun Belt, Coastal U.S. Cities Multifamily Rent Gaps Narrow in 2022
According to global property consultant CBRE, Sun Belt markets have long offered cheaper multifamily rents on average than heavily populated coastal markets. However, the gap between the two has been narrowing since 2012, when the average Sun Belt apartment rent per sq. ft. was 63% lower than the average coastal market rent. Today, the average Sun Belt apartment rent is 24% higher than its pre-pandemic level in Q1 2020, compared with a 7% increase for the coastal market average. This has lowered the gap between the two to 50%, with more than half of this decline occurring over the past seven quarters due to pandemic-related in-migration creating more demand in lower-cost Sun Belt markets.
Despite the rent increase, Sun Belt markets remain relatively affordable because renter income1 has generally kept pace with the cost of rent. The average Sun Belt renter's income was 17.8% higher in Q1 2022 than the pre-pandemic level of Q1 2020, compared with just 7.5% higher for the average coastal renter income.
The rise in both income and rents has maintained a relatively consistent rent-to-income ratio of approximately 25% for Sun Belt markets during the pandemic. Renters are typically considered "cost burdened" if rent accounts for 30% or more of their gross household income. For coastal markets, when average renter income declined between Q1 2020 and Q1 2021, the average rent-to-income ratio initially came close to 30%. However, as income growth resumed in Q2 2021 alongside only moderate rental rate increases, coastal rent-to-income ratios fell more in line with Sun Belt ratios.
The pandemic has led to a more widely distributed workforce. Despite increased housing demand, rent and income growth, along with the supply response from developers, Sun Belt markets still have runway for additional rent growth before affordability becomes a pressing concern for the average renter.
