Apartment Market Shows Seasonal, Moderation Trends

Occupancy Rises

Axiometrics - Dave SorterSeptember 13, 2016

Historical seasonal trends and the continued moderation of the national apartment market were reflected in August 2016 performance metrics, as national annual effective rent growth fell below 3% for the first time in 2½ years. 

August rent growth of 2.9% was the lowest since the 2.8% of February 2014, but remained above the long-term (1990-2015) average of 2.2%. The rate represented a 29-basis-point (bps) decrease from July’s 3.2% and a 224-bps decline from the 5.1% of August 2015. 

Effective rent growth has decreased from July to August in five of the past six years, the exception being 2014 when market performance was surging. The average of those decreases was 16 bps, with larger declines in 2011, 2013 and 2016. 

Rent Growth Drops in Most Metros

Rent-growth moderation continued in metro markets across the board. The rate decreased from the July 2016 rate in nine of the top 10 markets for effective rent growth among the Axiometrics top 50, which is based on number of units. Some 14 of the top 20 rent-growth metros experienced decreases, as did 38 of the entire Axio top 50 and 75 of the Axio top 120. 

Axio top 50 markets that saw decreased rent growth month-over-month also declined year-over-year, but markets with higher month-to-month growth were split between increased and decreased year-over-year rates, as shown in the table below: 

Except for Sacramento and Riverside – which recorded the two highest rent-growth rates among top 50 metros in August – the markets in the bottom three categories were primarily in the Midwest, Southeast and Northeast. The Northeast markets, not including DC, experienced increased rent growth after several months of decline. 

Note San Francisco and Houston as markets that have decreased annual rates. Houston recorded its fifth straight month with negative rent growth, falling to -2.9% in August. The oversupplied, urban-core Montrose/River Oaks submarket was the primary culprit with -8.0% effective rent growth. 

San Francisco fell to -1.7% rent growth in August, and was joined in negative territory by San Jose, at -1.6%. Oakland was still above water at 1.4%, its lowest rate since April 2010. 

Occupancy and Year-to-Date Rent Growth

National occupancy increased 10 bps to 95.2% in August, at least the eighth straight year the rate went up from July to August. With school back in session, most households have moved into the residence they will live in for the next year, meaning fewer people are vacating their apartments. 

August’s occupancy rate, however, was 26 bps lower than the 95.4% of August 2015.

Meanwhile year-to-date (YTD) rent growth increased 14 bps to 4.3% in August, the second lowest July-August increase in the post-recession period. The rate was 58 bps lower than the post-recession August average of 4.9% and was just 7 bps ahead of 2013’s August rate, the lowest of the recovery.

August’s YTD performance further separated 2016 from the post-recession average.

The chart below depicts the post-recession August YTD performance.

 Top 3 Metros Remain the Same

Sacramento marked six straight months as the market with the highest annual effective rent growth among the Axiometrics top 50, with Riverside and Seattle remaining at Nos. 2 and 3 for the second straight month.

Atlanta had the strongest upward move, climbing two spots to No. 8, while Charleston recorded the biggest drop, four places to No. 17.

All the metros in the list below held over from July’s list. Just short of the mark are surprising Indianapolis and Memphis, which had the two highest year-over-year rent-growth increases among the top 50 – 329 bps and 255 bps, respectively.