RealPage® MPF Research Division Reports Some Slowing in Rent Growth for the U.S. Apartment Market in the Second Quarter
Occupancy and Rents Both Still Rise, Yielding Revenue Growth of 1.5 Percent Quarterly, 4.8 Percent Annually
CARROLLTON, Texas, July 3, 2012 /PRNewswire/ -- Effective rents for new
leases in U.S. apartments climbed 1.2 percent during the second quarter
and 4 percent between mid-2011 and mid-2012, according to MPF Research,
an industry-leading market intelligence division of RealPage, Inc.
(NASDAQ: RP). The annual rent growth pace has slowed modestly during the
past few months, after the rate of increase reached 4.8 percent at the
end of last year.
"While rent growth remains well above the long-term norm, there's no
question that pricing momentum now isn't quite where it was a few months
ago," said Greg Willett, MPF Research vice president. "For many owners
and operators, the soft patch seen in job production has raised concerns
that apartment demand could prove sluggish during the last half of the
year. At the same time, initial leasing will begin during the next few
months on quite a few new properties that are on the way. Thus, the
typical operational strategy calls for filling product now, even if it
means holding back a bit on the rent increases that were targeted
earlier."
Average occupancy in U.S. apartments reached 95.2 percent in the second
quarter, up from 94.9 percent in the first quarter and 94.4 percent in
mid-2011. When occupancy bottomed during the recession, the late 2009
rate was 92 percent.
Apartment demand registered at 51,400 units across the country's 100
largest metros during the second quarter, according to the MPF Research
data. That product absorption figure well surpassed completions held to
19,000 units. From mid-2011 to mid-2012, demand for 169,500 units more
than doubled deliveries totaling 68,100 units.
"While demand has cooled somewhat from the especially strong levels seen
in 2010 and 2011, the current pace of leasing activity is still
healthy," Willett said. "Young adults, who tend to be renters, are
accounting for a disproportionately large share of job additions,
helping spur new household formation. Middle-market properties are
capturing most of the new demand for apartments at this point in the
cycle across many metros, partly reflecting that top-tier product
already has been essentially full for a while."
Among individual metros, San Francisco and San Jose have been trading
back and forth the lead in apartment rent growth during the past year
and a half. As of the second quarter, San Francisco was on top with
effective rents up 12.6 percent. San Jose's prices climbed 10.3 percent
between mid-2011 and mid-2012.
Charlotte is a metro that has been charging up the list of the country's
rent growth leaders during the past few quarters. The 6.8 percent
annual increase in prices seen as of the second quarter was the nation's
third-biggest jump. Rents climbed 6 to 6.3 percent between mid-2011 and
mid-2012 in Oakland, Boston, Austin, and New York.
Completing the list of the country's top 10 metros for annual rent
growth as of mid-2012 were Denver-Boulder at 5.7 percent, Raleigh-Durham
at 5.4 percent, and Hartford, Conn., at 5 percent.
Rent Growth Leaders in the Year-Ending 2Q 2012
Annual
Rent
Rank Metro Growth
1 San Francisco 12.6%
2 San Jose 10.3%
3 Charlotte 6.8%
4 Oakland 6.3%
5 Boston 6.2%
6 Austin 6.1%
7 New York 6.0%
8 Denver-Boulder 5.7%
9 Raleigh-Durham 5.4%
10 Hartford 5.0%
Columbus, Ohio, Nashville, and Dallas all just missed the cut for top 10
annual rent growth performances, as each area registered increases of
4.8 to 4.9 percent.
Apartment developers continue to scramble to get more product coming out
of the ground. The number of apartments physically under construction
at the end of the second quarter climbed to roughly 162,000 units across
the nation's 100 largest metros.
"Development activity is accelerating and will climb quite a bit
further," Willett said. "Still, it's important to realize that we're
only returning to a fairly normal construction volume, after starts
during the recession fell to record lows for the modern era. Many
locales today are starved for additional inventory."
If there is any overbuilding just ahead, it's likely to be on a spot
basis, according to the MPF Research analysis. "While some of the
biggest increases in construction are seen in the Texas markets, those
areas also are the country's job growth leaders," Willett said. "Thus,
the stocks on the way in the Lone Star State do look absorbable." The
places to watch for too many short-term product additions are locales
where construction is at or above its long-term norm at the same time
that job growth remains somewhat sluggish. The metro Washington, DC area
is the key example.
