New apartment properties completed in late 2016 and early 2017 are scrambling to land their initial residents. Rental housing occupancy is dropping, especially in the high-end apartment product niche, as a sizable wave of new buildings came on stream in the colder weather months when leasing activity is seasonally sluggish across much of the nation.
This news release combines the market-leading expertise and analysis of real estate technology and analytics firm RealPage, Inc. (NASDAQ:RP) with Axiometrics, now a division of RealPage. Statistics from RealPage on rents and rent growth are provided, while the Axiometrics data set is the source for occupancy and construction figures. Economists and market analysts are in the process of combining the two extensive data sets to form The SourceSM for rental market data and analysis.
Axiometrics reports current U.S. apartment occupancy at 94.5 percent, down from 95.1 percent last fall. Demand recorded during the past two quarters fell more than 100,000 units short of deliveries that totaled 164,549 units in the six-month period, according to the Axiometrics data.
“Occupancy remains solid relative to the long-term norm, but there are lots of available units at just-completed projects,” according to Jay Denton, vice president of RealPage’s Axiometrics business group. “Also, top-tier existing projects are losing performance momentum for the first time in this market cycle. Some renters from established luxury projects are opting for the newest deliveries in order to take advantage of rent discounts often offered during the initial lease-up process.”
Demand Should Rebound, but May Not Catch Up with Deliveries
RealPage analysts think that the recent stumble in apartment leasing activity is probably a brief lull.
“With job production coming in above expectations during the past few months, there’s underlying support for new household formation,” according to RealPage chief economist Greg Willett. “Apartment demand should prove strong in 2017’s prime leasing season. Economic and demographic influences that stimulate apartment absorption are moving in the right direction.”
Axiometrics reports that 581,556 apartment units are under construction across the country right now. Scheduled deliveries climb to an average of 102,000 units per quarter during the remainder of the year, compared to the average 82,000 units finished per quarter in late 2016 and early 2017.
“This year’s deliveries will provide relief from previous product shortages in much of the country,” Willett said. “Still, it would be surprising if overall demand kept pace with completions for the remainder of 2017, and there are clearly some individual neighborhoods becoming overbuilt in the luxury product segment.”
Rent Growth Remains Sizable Overall, but Pockets of Softness Exist
Rents for new-resident leases rose 0.9 percent during the first quarter, taking the annual price hike to 3.7 percent, according to RealPage’s calculations.
“Pricing momentum remains strongest in the middle-market Class B properties,” Denton said. “Results are more hit-and-miss moving up the spectrum in product quality. Top-tier projects in neighborhoods with the most construction are struggling to push rents at all. In many metros, that’s especially true in the urban core. However, Class A product rent growth is still substantial in desirable suburbs adding comparatively modest new supply.”
Monthly rents now average $1,302 nationally in the RealPage data set.
“Apartment operators appear to have made informed, fact-based choices on pricing strategies during recent months,” according to Willett. “They appropriately realized that slashing rents wouldn’t create much demand in a period when leasing activity is seasonally slow. It’s encouraging that emotional decisions didn’t take over for the most part.”
Sacramento Still Tops the Charts
Some of the country’s individual metro rent growth leaders have economies where recovery trailed the national norm and apartment construction hasn’t yet reached aggressive levels. According to RealPage data, Sacramento continues its run at the top of the list, with rents for new-resident leases up 9.8 percent annually.
Seattle and Riverside-San Bernardino, both posting annual rent growth just under the 8 percent mark, also remain among the best performers.
Leaders in Annual Rent Growth for New Residents
Year-Ending in First Quarter 2017
|3||Riverside-San Bernardino, CA||7.8%|
|4||Fort Worth, TX||6.6%|
|6||Las Vegas, NV||6.0%|
|7 (tie)||Dallas, TX||5.9%|
|7 (tie)||Raleigh-Durham, NC||5.9%|
|9||Los Angeles, CA||5.6%|
|12 (tie)||Charlotte, NC||5.0%|
|12 (tie)||Tampa Bay, FL||5.0%|
Other large markets posting annual rent growth of 4.5 percent or better in the RealPage calculations include Orlando, Orange County, San Diego, Minneapolis-St. Paul, Denver-Boulder, Cincinnati and Nashville.
Rent cuts continue in a handful of the nation’s key apartment markets. RealPage information shows that prices are down about 1 percent on an annual basis across New York (-1.4 percent), San Francisco (-1.3 percent) and Houston (-0.9 percent). Pricing stabilized in San Jose during early 2017, after that market previously experienced mild rent declines.
“New York and the Bay Area continue to register occupancy rates among the tightest anywhere in the country, even with increasing deliveries creating a more competitive leasing environment for top-tier product,” Willett said. “While we would expect the rent growth pace to slow, actual rent cuts perhaps aren’t generating much additional demand.”
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