The St. Louis market’s rent and occupancy were both outperforming the national averages in the second quarter of 2023. According to Berkadia’s 2023 Midyear St. Louis Multifamily report, while the national effective rent rose four percent annually, the average effective rent in St. Louis increased 6.6 percent year-over-year, reaching $1,251 per month during 2Q23.
The secure year-over-year effective rent growth allowed apartment operators to drop concessions significantly. Before the pandemic, an average of 21 percent of landlords offered concessions, compared to an average of 6.4 percent over the past year.
The St. Louis metro’s annual effective rent increase outpaced other mid-western markets, such as Chicago, Detroit, and Minneapolis-St. Paul. The healthy rent growth was fueled by the stable apartment demand throughout Greater St. Louis.
St. Louis, Missouri’s Effective Rent Growth
The annual effective rent growth has cooled, consistent with the national trend. Compared to sunbelt markets such as Phoenix, Las Vegas, and Salt Lake City, St. Louis’s drop in effective rent growth year-over-year was not as dramatic. For example, Metro Phoenix’s effective rent went from a 20.9 percent annual increase at mid-year 2022 to a 3.6 percent annual decline at mid-year 2023. Similarly, the annual effective rent growth in Las Vegas was up 21.2 percent during 2Q22 and down 2.4 percent during 2Q23.
Meanwhile, St. Louis’s annual effective rent growth went from 11.5 percent during mid-year 2022 to 6.6 percent during mid-year 2023. St. Louis’s effective rent is still increasing above the pre-pandemic five-year average of 4.6 percent. This healthy annual rental increase is fueled by the stable demand throughout the metro. From one year prior, the market saw an uptick in net move-ins. With 1,453 net units absorbed from 2Q22 to 2Q23, the market demand increased 22.7 percent compared to the same period one year ago. Most of the demand in the metro was sourced from the St. Louis City submarket. The growth in net absorptions across the market was underpinned by renters seeking out higher-end properties, especially new builds.
Meanwhile, the average occupancy rate was 94.9 percent at the end of 2Q23, 20 basis points above the national average. With elevated inventory over the past year paired with slowed rental demand, the occupancy rate dropped 100 basis points annually. Despite this, the metro’s 2Q23 occupancy rate of 94.9 percent rests 90 basis points above the five-year average pre-pandemic. Looking ahead, the occupancy rate will continue to receive downward pressure from leasing activity that will be outmatched by heightened new supply.
Strong apartment fundamentals can be attributed to St. Louis’s stable economy. According to Berkadia’s 2023 Midyear St. Louis Multifamily report, Great St. Louis’s unemployment rate was at 3.2 percent, performing better than the national average. The metro’s economy expanded by 1.0 percent year-over-year, adding net jobs to local payrolls.
The leisure and hospitality sector grew the most, increasing 6.2 percent annually or by 8,700 jobs. This growth was underpinned by increased tourism in St. Louis. Attendance at Gateway Arch National Park was up 41 percent from one year prior, with a total of 1.6 million visitors in 2022.
Beyond the leisure and hospitality industry, multiple companies are expanding their presence in the St. Louis metro area. Boeing announced that they will invest $1.8 billion and add 500 high-quality jobs for their new aerospace programs. This marks one of the biggest defense projects in the St. Louis region’s history, costing more than the National Geospatial-Intelligence Agency’s headquarters that will be fully operational in 2025.
– Berkadia Research