Reno-Sparks ended last year with average rents above $1,600 once again — the 11th straight quarter that the market saw rents above that price.
In fact, the last time that average rents in Reno-Sparks were below that number was the first quarter of 2021, according to data from real estate appraisal and consulting firm Johnson Perkins Griffin.
The good news for renters is that average rents in Reno-Sparks have gone down for two quarters in a row, ending 2023 at $1,612. That’s the lowest average rent seen in the area since, well, early 2021.
The question now is whether rents will continue to go down or jump up again. After all, the average apartment rent also fell for two straight quarters at the end of 2022, only for it to go up two quarters in a row during the first half of last year.
Reno’s surging multifamily apartment market
Insufficient housing construction after the global financial crisis of 2010 led to skyrocketing rents in Reno-Sparks several years later as inventory was quickly gobbled up while the area recovered from the Great Recession.
At the beginning of 2013, for example, the average rent in Reno-Sparks was $829. Average rents in Reno-Sparks also hovered within the $800 range from 2006 to early 2015.
By the second quarter of 2022, however, the average rent more than doubled to $1,680, which continues to be the record for the highest rent seen in Reno-Sparks.
Growth especially started to pick up after 2014 when Tesla picked Storey County as the site of its first Gigafactory, with several other companies also deciding to move or expand into the greater Reno area.
The strong demand for housing combined with cheap financing from low interest rates fueled a building boom for new apartments in the area.
“Our area had just been going gangbusters,” said Brian Bonnefant, project manager at the Center for Regional Studies at the University of Nevada, Reno. “A lot of it had to do with in-migration demographics.”
Reno-Sparks would see the largest number of housing permits filed since the 2005 housing bubble. Permits for apartments, in particular, surged and several new apartment projects started to come online in recent years.
Even now, there are still 15 major apartment projects with 80 units or more under construction in Reno-Sparks, according to Johnson Perkins Griffin. They are expected to add 4,708 units to the market.
In addition, there are 16 more large apartment projects in the planning stages that account for an additional 4,771 units.
One national real estate company is projecting an influx of units in the Reno-Sparks metro area.
“Right now, Reno is our 80th largest market (in the United States) from a rental standpoint,” said Doug Ressler, business intelligence manager for property management software company Yardi. “It has over 44,000 units completed and there are 13,000 to 15,000 units in the process of construction that will pan out in the next couple of years.”
All eyes on the impact of new apartment inventory in the pipeline
With thousands of new apartments set to enter the market, industry watchers are keeping an eye on the potential impact on rents.
While vacancies are still below the 5% rate that denotes a balanced market, they have been trending higher as more inventory enters the market.
The 3.09% vacancy seen at the end of 2023, for example, is the highest since the third quarter of 2022. It also marks a big change from early 2021 when vacancies dipped below 2%, although it is also important to note that vacancies typically get higher during the fourth quarter of most years.
Meanwhile, new apartments are not filling up as quickly as they used to.
“Although the overall vacancy rate for the entire market has remained low, it is recognized that there are currently a number of new projects that are taking a prolonged amount of time to reach stabilization at 90% occupancy,” Johnson Perkins Griffin stated in its report.
Ten of Reno-Sparks’ 11 apartment submarkets also saw their average rents decrease, with only the West Reno submarket seeing a slight increase.
In another sign of slowing apartment absorption, more apartments are offering rent concessions. By the end of last year, 37.27% of apartments were offering concessions to renters, according to Johnson Perkins Griffin. The last time more than 37% of apartments offered concessions was the beginning of 2014.
Falling rents would be good news for residents who have struggled with housing affordability in Reno-Sparks. With median home prices hovering around the $600,000 range in Reno, more people are unable to afford buying a home and are renting longer.
At the same time, new apartment construction is also expected to slow down as more developers take a wait-and-see approach to confirm how quickly the upcoming inventory is absorbed.
Two potential wildcards are inflation and interest rates.
Higher than expected inflation and job growth in March has killed hopes for a June rate cut by the Federal Reserve . The higher cost of financing is also making developers hesitant about starting new projects.
Should new development for housing stall — new housing permits already fell by 28% last year in Washoe County — Reno-Sparks could very well see a repeat of the Great Recession where what was initially thought of as a housing surplus turned into a housing deficit.
For now though, the pace of housing development in Reno-Sparks is still high, according to Yardi’s Ressler.
When the percentage of housing units coming on board is equal to 3% of the existing housing stock, the pace of development is considered to be aggressive, Ressler said. The pace this year for Reno-Sparks is 3.5%.
Next year is even higher at 4.8% of inventory, Ressler added.
“So there’s a tsunami (of new housing units) for Reno,” Ressler said. “The pipeline is pretty full.”
Average rents in Reno-Sparks by submarket and apartment type
Here are the average rents for each area in Reno-Sparks, according to the latest data from Johnson Perkins Griffin from the end of 2023. Note that the downtown urban market combines the downtown areas for Reno and Sparks.
- East Sparks: $1,764
- Southeast Reno: $1,699
- Downtown Urban: $1,687
- Northwest Reno: $1,676
- Lakeridge: $1,667
- West Reno: $1,581
- W.Sparks/N. Valley: $1,450
- Airport: $1,430
- Southwest Reno: $1,392
- Northeast Reno: $1,390
- Brinkby/Grove: $1,200
In addition, here are the average rents for Reno-Sparks by unit type.
- Studio: $1,193
- 1 bedroom, 1 bath: $1,433
- 2 bedrooms, 1 bath: $1,485
- 2 bedrooms, 2 bath: $1,763
- 3 bedrooms, 2 bath: $2,202
- Townhouse: $1,892
This article originally appeared on Reno Gazette Journal: Are Reno-Sparks apartments overbuilt? Plus most and least expensive areas to rent
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