Las Vegas Posts Highest Multifamily Rent Growth in U.S. in 2018
The Las Vegas multifamily market led the nation with the highest rent growth during 2018, driven by strong migration trends and a high concentration of prime-age workers. A rise in new construction bolstered a slight increase in the vacancy rate, yet it remained among the lowest nationally. Investment activity continued at a robust pace, although it fell slightly short of 2017’s record level.
Multifamily demand is expected to remain high in 2019, as the local economy expands further into the cycle, especially given that the rapid increase in home prices has reduced homeownership demand.
According to Reis, the asking rent in Las Vegas averaged $1,097/unit at the end of 2018, an increase of 8.6% year-over-year, and the fastest growth in the U.S. Additionally, rent has risen in every quarter since third-quarter 2011. Class A rent increased 9.2% during the year, while Class B/C increased 6.7%. Overall, Reis forecasts rent to increase 5.0% during 2019, then slow into the 3.4% range through 2023.
Driven by the addition of new supply, the market vacancy rate increased to 4.0%, up from 3.2% at the end of 2017, yet it remained among the 20 lowest nationally. Class A vacancy climbed to 5.0%, up from 3.7% one year ago, while Class B/C increased to 2.9%, from 2.7%.
The pace of construction continued to accelerate, with more than 3,800 units coming online during the year. This surpassed the 2017 total of 2,900 units, and marked the highest annual total for the market since 2001. Absorption edged higher, although it was unable to keep pace with new supply, totaling just over 2,500 units.
Reis forecasts indicate that 2018 was the likely peak for apartment construction in the market, with 1,100 units expected to be completed during 2019. Demand is also expected to overtake new supply, as absorption is forecasted at more than 1,300 units for the year.
Multifamily investment has increased substantially in Las Vegas over the last three years. Real Capital Analytics reported that sales volume totaled $2.2 billion during 2018, double the 10-year average of $1.1 billion, although momentum was down compared to 2016 and 2017.
Real Capital Analytics also reported that apartment cap rates in Vegas averaged 5.5% during the year, down from 5.7% at the end of 2017, and the lowest level on record. The average sales price was $122,388/unit for 2018 sales, the highest since 2007.
The Las Vegas economy has traditionally been dictated by its well-known gaming and entertainment industry. However, the area’s strong migration trends and high concentration of prime-age workers have driven the current cycle.
According to the U.S. Bureau of Labor Statistics, total nonfarm employment in the Las Vegas-Henderson-Paradise, NV, metro increased 3.9% during 2018, as compared with 3.2% during 2017, and 1.8% for the U.S. overall. The largest gains were reported in the manufacturing (up 15.0%) and construction (up 12.3%) sectors, with no major sectors reporting losses.
Vegas-area home prices continued their rapid increase, raising affordability concerns and reducing homeownership demand. The S&P CoreLogic Case-Shiller Las Vegas Home Price NSA Index increased 12.1% during the 12 months ending in November, which was the highest among the 20 cities covered in the index. As a comparison, the U.S. National Home Price Index registered a 5.8% gain.
For more multifamily trends and insights, view our U.S. multifamily market update.