The average rent in Reno-Sparks broke the $1,400 mark for the first time as the Northern Nevada metro continued to post new highs amid the COVID-19 pandemic.
The combined average rent for both cities reached $1,421 during the third quarter of 2020, according to the latest report from real estate appraisal and consulting firm Johnson Perkins Griffin.
The number represents a $52 increase from the previous quarter. It also marks the second straight quarter that Reno-Sparks posted a record high for average rent.
With the exception of the downtown urban submarket, nearly all of the 11 Reno-Sparks submarkets saw an increase in rent. The downtown urban submarket, which includes downtown Reno and downtown Sparks, has been seeing the highest vacancy rates this year, including 5.59% during the third quarter.
The number, however, is an improvement over the 7.25% vacancy rate seen during of the beginning of the year.
Where is the highest average rent?
The highest rent increases by dollar amount were seen in the Lakeridge and East Sparks neighborhoods, which saw average rent jump by $99 and $89 respectively. East Sparks also continued to post the highest average rent in the area at $1,599 per month.
The rising rent occurs as high demand puts pressure on the market’s available housing supply, with some neighborhoods approaching near-zero vacancy. The vacancy rate during the third quarter was 2.24%, far below the 5% vacancy rate typically seen in a balanced market.
Vacancy rates in Reno-Sparks have tightened for three straight quarters since hitting 3.96% at the end of 2019. Four Reno-Sparks neighborhoods also saw vacancies fall below 2% — Northeast Reno, Southeast Reno, the Airport area and East Sparks.
The jump in rents is also mirroring ongoing spikes in the median price of an existing single-family home in the area. In Reno, the median home price broke past $460,000 for the first time in August. Sparks, meanwhile, posted a record high of $415,000 in July.
COVID-19 leaving a mark
The increase in average rent is occurring in Reno-Sparks despite the impact of COVID-19 on the overall economy.
The apartment industry has been bracing for the pandemic’s aftershocks since COVID-19 started leaving its mark on Nevada. The first major impact started with a statewide closure of non-essential businesses in March that fueled the highest jobless rate ever seen in a U.S. state — a record 28.2%.
While the state has steadily reopened businesses such as its hotel-casinos and added jobs back, the apartment industry remains cautious. Concerns include the federal government’s failure to come up with a new stimulus plan to help American workers who are struggling with the economic impact of COVID-19.
Concerns about vacancies
Nevada’s moratorium on evictions, which has helped keep distressed renters in their apartments, also was lifted on Oct. 15. A federal moratorium remains in place through the end of the year but requires people who need help from being evicted to fill out a form from the CDC.
To gauge the impact of COVID-19, Johnson Perkins Griffin added a question about delinquencies to its third-quarter report. The average delinquency rate for apartments that took part in a Johnson Perkins Griffin survey was at 8.74%, with about 40% of properties reporting no delinquencies. Back in 2017, the average delinquency rate nationwide was 3.9%, according to the American Housing Survey.
Johnson Perkins Griffin, however, warns that the pandemic could still affect the apartment industry in the coming year.
“While it is unknown exactly how the multi-family market will be impacted, we can speculate that there may be an increase in vacancies in the coming quarters which may lead to decreases in average rental rates,” the Johnson Perkins Griffin report said. “Additionally, it is likely that rent abatements and other concessions will become more prevalent in the upcoming quarters.”
COVID-19 remains a wild card
Any drop in rents would provide relief to Reno-Sparks tenants, who have seen a sharp rise since average rent first topped the $1,000 mark back in the second quarter of 2016. Since then, the average rent has jumped up by 38%, far outpacing wage growth and inflation.
More than 5,000 apartment units are under construction in Reno-Sparks while an additional 5,200 units are also in the planning stages, according to Johnson Perkins Griffin. Additional supply is considered crucial in addressing the area’s housing shortage. COVID-19, however, continues to be a wild card.
“Due to the Covid-19 pandemic, it is likely that development of planned units will be delayed in the short-term, until the ultimate impact of the pandemic is known,” Johnson Perkins Griffin said in its report.
Adding to the concern is the shortage of affordable housing options being built as well as the large number of luxury apartment units in the list of upcoming projects. When the Park Lane project was initially announced by Reno Land Inc., for example, the developer stated that the apartments would be market rate. Projected rents for the development, which expects to see its first tenants move into the property in January, have since been pegged at the upper end of the rental spectrum.
The project, which was renamed the Reno Entertainment District, recently posted rents for the first batch of its 1,300 luxury apartments, which start at $1,885 for studio apartments. Two-bedroom apartments start at $2,820 and go up to $2,925.
In contrast, the average rent for a studio apartment in Reno-Sparks during the third quarter was $923. Two-bedroom apartments saw an average rent of $1,299 with one bathroom and $1,567 for two baths. Reno Land Inc., referred all queries to Newport, California-based developer Lyon Living, which has since taken the lead in the project. The Reno Gazette Journal has reached out to a representative of Lyon Living for comment.
The question now is whether the market is able to bear such higher rents, particularly with a pandemic swirling in the background.
“It is likely that vacancy rates (in Reno-Sparks) will begin to increase once all eviction moratoriums are lifted,” Johnson Perkins Griffin cautioned in its report. “Rental rates, which have continued to increase since the last recession, will likely begin to stabilize, and ultimately decrease over the next several quarters.”
Average rent by neighborhood
Here is a listing of the various Reno-Sparks submarkets by average rent during the third quarter:
- Northwest Reno: $1,466 (up by $31)
- Northeast Reno: $1,259 (up by $48)
- West Sparks & North Valley: $1,228 (up by $28)
- East Sparks: $1,599 (up by $89)
- West Reno: $1,247 (up by $32)
- Southwest Reno: $1,286 (up by $41)
- Brinkby/Grove: $1,016 (up by $30)
- Airport: $1,251 (up by $47)
- Lakeridge: $1,549 (up by $99)
- Southeast Reno: $1,485 (up by $49)
- Downtown Urban: $1,435 (down by $72)
Jason Hidalgo covers business and technology for the Reno Gazette Journal, and also reviews the latest video games. Follow him on Twitter @jasonhidalgo. Like this content? Support local journalism with an RGJ digital subscription.