Sun Belt Migration Flowing to Smaller and Midsized Locales
As population continues to shift to the Sun Belt, multifamily markets in Southeastern cities have seen historically fast rent growth. While the growth of larger metropolitan areas is well documented, strong net migration is pushing apartment rents up in many smaller or midsized cities across the Sun Belt.
Across the United States, the top 10 metropolitan areas for rent growth with between 10,000 and 49,999 apartment units averaged a 23.1% annual increase, while the top 10 markets with 50,000 or more units were up 21.1% year over year. The difference in rent growth at the extreme is even greater. The fastest-growing midsized city, Naples, Florida, saw 38.4% rent growth, while in the fastest-growing metropolitan area with more than 50,000 units, Palm Beach, Florida, rents grew by 26.9% year over year.
Florida cities dominate the top 10 areas for rent growth across all size categories. Among midsized markets, Sarasota, with 33.2% growth, and Fort Myers, at 30.9%, round out the top three with Lakeland's 18.1% ranking sixth and Melbourne's 17.7% and Daytona Beach’s 17.6% ranking ninth and 10th, respectively.
Other coastal markets such as Savannah, Georgia, with 20.3% growth, Wilmington, North Carolina, with 18.6%, and Myrtle Beach, South Carolina’s 18.6% rank fourth through sixth, while Appalachian tourism destination Asheville, North Carolina, with 17.8%, ranked eighth.
Builders are looking to capitalize on the strong rent growth observed in many of these smaller metropolitan areas and are busy breaking ground on new projects to meet recent demand trends.
Small towns and rural areas have all increased their share of new apartment permitting over the past two years, according to the National Association of Home Builders. Places such as Myrtle Beach, Naples, Fort Myers and Lakeland rank as some of the most supply-heavy midsized metropolitan areas in terms of supply underway and net completions as a percent of inventory.
But the increase in supply could take years to meet the newfound demand, and each of these fast-growing cities rank highly for both apartment demand and rent growth. Remote work trends, the acceleration of retirements and tight, single-family for-sale inventories have increased the appetite for renting in smaller markets with limited existing supply.
Homeownership rates in Florida, for example, trend higher than in other Southeastern states, which has limited new supply relative to population growth. Nearly 77% of Sarasota households live in an owner-occupied housing unit as of 2019. That lack of earlier investment has put extreme pressure on the existing multifamily rental supply, with stabilized vacancy rates, which account only for properties 18 months or older, at around 3%. In Savannah, by contrast, where the homeownership rate is 60%, the stabilized vacancy rate is just above 5%.
Demand has increased in some midsized markets because of their affordability advantage compared to nearby larger metropolitan areas. In North Carolina, Greensboro and Winston-Salem, which rank 11th and 13th among midsized markets for rent growth at 16.3% and 15.4%, retain average rents less than $1,100 per month. That offers a substantial discount from the larger nearby Durham and Raleigh areas where rents average above $1,450 per month. Rents in Lakeland, which is inland between the Tampa and Orlando areas, average $1,408 per month, which is nearly a $300 per month discount from both larger neighbors.
On the other hand, some amenity-rich markets don’t necessarily offer a discount from larger cities. Rents in Sarasota, for example, average $1,922 per month, more than $200 per month more than nearby Tampa. In North Carolina, Asheville's average rent of $1,506 per month is slightly higher from the largest in-state city of Charlotte, where rents average $1,496 per month.
College towns such as Knoxville, Tennessee, with 16.1%, and Boulder, Colorado, with 13.7%, also rank within the top 20 of midsized markets for annual rent growth.