The Gateway City is gaining strength — for the second year in a row, Newark, New Jersey tops Apartment Guide’s 2020 Guide in terms of rental increases. Average rents for a studio apartment in the city rose 44.8% year-over-year. One-bedroom rents rose 42.8% and two-bedroom rates rose 27.4%.
The rise exemplifies a national trend of growing interest in satellite cities, said Brian Carberry, managing editor of Apartment Guide. National average rents are increasing, while rents in major cities are decreasing as they become unaffordable for most.
“New York is a prime example,” Carberry said. “It’s so expensive. Newark is an attraction option for people who want to commute, and it’s an up-and-coming area.”
Similarly, Long Beach, California saw a 14% rise in one-bedroom rents, while Los Angeles saw a drop of 2%. In California’s Bay Area, one-bedroom rent rose in Oakland (1%) and San Jose (1%), but is down in San Francisco (-1%).
“So many cities can be tech hubs, especially with remote workers,” Carberry observed.
This is true of a number of metro areas, the report observes, though trends vary within-in metro areas. In Dallas-Fort Worth, Texas, one-bedroom rent is up in Fort Worth (8%), Plano (8%), Dallas (8%) and Irving (7%) but down 14% each in Arlington and Garland. In Virginia’s Tidewater region, one-bedroom rent is up in Chesapeake (12%) and Norfolk (1%) while decreasing in Virginia Beach, (-27%) — the nation’s largest average rent decrease for this unit size.
Pricing remains tight largely because construction, while strong, still is not keeping pace with demand, the report said.
“There’s still reason to speculate that the lower-than-usual build rate for new housing could inherently be placing pressure on the rental market,” the report said. “In the West, for example, a look at issued housing permits from 2007 to 2017 shows the most constraint in western states — which is also where we’ve noted the largest and most universal increases in rent prices across unit size.
On a national level, the report found essentially no change (an increase of 0.4%) in studio apartment pricing, from $1,611.60 in 2018 to $1,617.92 in 2019. The average studio rent increased by 1.8% in 2018. One-bedroom prices increased 3.0% on average, from $1,541.30 in 2018 to $1,586.84 in 2019, an increase from the 1.6% increase posted in 2018.
Interestingly, the average studio unit is more expensive nationally than the average one-bedroom apartment. The report found that at the local level, 20 of the 100 most populated U.S. cities show higher rents for studio apartments than one-bedroom units. Overall, demand in the rental market — especially from older and higher-income renters — is likely to drive prices up and push renters toward a lower point of entry. In 2019, studio rent prices outpaced any other unit type, which could indicate that renters were increasingly interested in the smallest and typically most affordable unit size. Studio apartments in newer buildings can appeal to Generation Z and their baby boomer grandparents.
“Basically, these buildings have luxuries comparable to a five-star hotel, so they can charge more,” Carberry said. “These are being sought by empty-nesters, millennials and those fresh out of college.”
In contrast, one-bedroom rents are decreasing in nine of the top 25 U.S. markets by population, broken up fairly evenly by region with three in the Northeast and two in each of the South, Midwest and West.
Two-bedroom prices rose 1.7% year-over-year, from $1,779.26 in 2018 to $1,808.73 in 2019. Two-bedroom rental prices were relatively flat in 2018, increasing by only 0.2% on average throughout the year.
The report noted a slightly lower increase of 1.2% on average in three-bedroom prices, from $1,928.74 in 2018 to $1,951.14 in 2019. In the previous year, three-bedroom prices actually decreased by 1.8%.
“Three-bedroom units are kind of rare,” Carberry said, and usually appeal to millennials who have begun having families or to renters moving in with multiple roommates.
Perhaps most interestingly, renters would prefer to buy for their next home — but likely figure they can’t. By a three to one margin (75%), renters surveyed said they would prefer to buy rather than rent their next home. However, 68% said they planned to rent their next home.
