Houston climbs to the top of the apartment rankings

We expect a surge in completions and a slowdown in employment growth to push vacancy higher in most of our 17 metros over the next year or so. Atlanta and Houston are two key exceptions to this rule, where new starts have already plummeted in response to higher financing costs and falling apartment values. That will put a lid on vacancy rises in those markets and keep rents on an upward trajectory. Conversely, markets such as D.C. and Miami will trail, with vacancy set to climb rapidly and remain above 8%. We think that markets where we expect the weakest rental growth will also see the largest yield rises in the next year or so as pricing continues to adjust to higher interest rates. The upshot of this is that D.C. and Seattle will perform poorly over the next five years, with capital values in both metros set to drop a further 17%. (See Chart 1.) That will translate into average total returns of under 2% p.a. in Seattle and D.C. over the same period. At the other end of the spectrum, Houston will show strongest total returns of 8% p.a. over 2024-28, closely followed by Chicago and Boston.