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Market Reporting that Matters

August 2017 REIT Report

REIT Occupancy Rate Surpasses 96%

Even though effective rent growth at publicly traded apartment REITs has been slow so far this year, the bright spot in the performance metrics has been the occupancy rate. That was true again in August 2017, as REIT occupancy surpassed 96% for the first time since September 2016.

August’s occupancy rate was 96.1%, some 17 basis points (bps) above July’s 95.9% and essentially the same as August 2016’s rate. The rate has increased from July to August each year since at least 2009.


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As usual, the REIT occupancy rate outperformed the overall national rate, which remained steady at 94.9% in August. REIT occupancy has been higher each month since Axiometrics, a RealPage company, began monthly reporting in April 2009.

Rent Growth Up Slightly

Meanwhile, Apartment REIT annual effective rent growth continued its see-saw 2017 trend of down one month, up the next by rising 11 bps to 0.9% in August. That rate was 80 bps lower than the 1.7% of August 2016 and 133 bps lower than the national rate of 2.2%.


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The increase broke the seasonal trend of the past two years, when rent growth declined from July to August. The REIT increase in August, as compared to the slight decline in the national effective rent growth rate, might be a result of increased rent growth among Class A properties, which surpassed 2% in August for the first time since June 2016. Class A surpassed Class B rent growth in August.


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The Metropolitan Statistical Areas and Metropolitan Divisions among Axiometrics’ Top 50 apartment markets with the highest annual effective rent growth in August were:

  • Sacramento, CA (7.2%)
  • Las Vegas, NV (5.9%)
  • Nassau-Suffolk, NY (4.7%)
  • Orlando, FL (4.7%)
  • Phoenix, AZ (4.6%)
  • Riverside, CA (4.6%)
  • San Diego, CA (4.4%)
  • Richmond, VA (4.4%)
  • Fort Worth, TX (4.4%)
  • Jacksonville, FL (4.1%)

MSAs underperforming the national average included:

  • Charlotte, NC (2.0%)
  • Philadelphia, PA (1.9%)
  • San Jose, CA (1.8%)
  • Portland, OR (1.8%)
  • Boston, MA (1.6%)
  • Chicago, IL (0.9%)
  • Washington, DC (0.9%)
  • New York, NY (0.1%)
  • San Francisco, CA (-0.4)
  • Houston, TX (-1.7%)

 

YTD Rent Growth Continues to Fall

The early start to the late-year drop in apartment REIT Year-to-Date (YTD) rent growth continued in August, as the rate declined 10 bps to 5.1%. That figure was the lowest post-recession August YTD rate, 6 bps behind 2016’s figure.


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August’s YTD growth dropped it farther behind the post-recession average; it was 128 bps below the July average of 6.3%.


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Denver Offers Attractive Opportunity to REITs

AvalonBay recently announced it had purchased an asset in west Lakewood, its first move into the Denver apartment market. Historically, only a few apartment REITs have held assets in Denver – even as UDR and AIMCO are based in the metro.

The timing poses an interesting signal from AvalonBay. Overall fundamentals remain healthy. The metro reported robust annual rent growth in this cycle,with increases peaking at 12.8% in February 2015, and then quickly moderated. Rent growth measured 3.2% in August 2017. Moderating annual rent growth was expected to come down, and performance was adversely influenced by falling energy prices in 2015.

Nonetheless, roughly 10 quarters removed from the recent peak, the outlook for the Denver apartment market remains favorable. Demand in the Mile High City is still robust as population growth rivals other healthy metros with a strong tech presence.


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REITs have positioned their assets thoughtfully in the Denver area: near LoDo, Tech Center, farther south along Interstate 25 where the highway intersects Interstate 470, and farther west through I-80 near Lakewood.

The image below highlights the concentration of assets by multifamily REIT in the Denver metro area. These locations boast some common themes. They are within close proximity to transportation networks, including Denver's RTD Light Rail system, and employment hubs with higher-paying occupation. And they reflect the REITs’ desire to offer suburban options with assets located in Centennial, Littleton and Lakewood. 


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In terms of structural factors that make the metro an ideal target, Denver is a leader in attracting both younger and more mature renter groups relative to other gateway markets in the U.S. with highly educated, well-paid demographic groups. According to estimates from the U.S. Census, Denver’s population grew 9.9% from 2010-2015, adding roughly 270,000 people.

The table below compares Denver’s impressive population growth to other major metros. In the prime-renting age groups: 20- to 34-year-olds, Denver boasts greater growth than a select group of major metros in the West, Midwest and South regions. For good measure, we also included the 55+ age cohort, as some aging baby-boomer households seek to transition from owning homes to renting based on lifestyle choices.


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The local economy has benefited from the strong structural drivers. The unemployment rate remains very low (2.4% as of July 2017, based on preliminary data from the Bureau of Labor Statistics). Moody’s data shows the labor participation rate at 69%, slightly higher than other major metros. That’s compared to 67% in Seattle, 67% in Atlanta, 65% in Chicago and roughly 63% in Los Angeles.

As such, employment growth remains solid in Denver, even though the rate of growth has slowed in recent quarters to 2.1% in the second quarter of 2017. Goods-producing employment segments have posted slowing growth and even job cuts recently. Information and Government segments posted marginal cuts at the end of the second quarter. Meanwhile, job growth remains healthy in Professional/Business Services, Trade/Transportation and Utilities, and Education/Health Services segments.


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Growth in Denver’s tech sector continues to be a selling point for the metro’s economy. The metro has a deep pool of tech talent, which will be a boon to the local economy. CBRE’s Scoring Tech Talent ranked Denver No. 12 spot for its “competitive advantage and appeal to tech employers and tech talent.” That was ahead of Chicago (No. 15), San Diego (No. 19), and Los Angeles (No. 24). The metro’s tight labor market and healthy tech sector will yield above-average economic growth.

Looking ahead, other multifamily REITs may follow AvalonBay in the Denver apartment market. With healthy structural drivers – both economic and demographic – the future looks bright for the Mile High City.

 

AIV Keeps Rent-Growth Lead

Aimco (AIV) assumed the apartment REIT rent-growth lead in July and stayed at the top in August, with a year-over-year (YoY) growth rate of 2.7%, a 13-bps increase from July’s 2.6%.

AIV’s rent growth was 98 bps ahead of No. 2 AvalonBay (AVB), which recorded 1.7% growth. Equity Residential (EQR) was third at 1.1%

AIV also had the highest rent growth on an average trailing 12-month basis (ATTM). Aimco’s 1.9% average rent growth was 49 bps ahead of second-place Mid-America Apartments (MAA)’s 1.4%, with AVB third, also at 1.4%.

UDR remained the occupancy leader with 96.7% of its units filled, 3 bps higher than No. 2 Camden Property Trust’s (CPT) 96.7% and 5 bps higher than Essex Property Trusts’ (ESS) 96.6%.


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Accessing the Data Files

The data files can be accessed by logging into the AXIOPortal®. Go to the Publications tab, select “Trend Report” under Category, then search for “REIT” in the “Search Publication Name” box. Select “REIT” in the Type dialogue box.

Student Housing REIT information can be accessed by clicking on the Publications tab, then, under Category, selecting “REIT Report” under the Student Housing section.

Please note that Aimco (AIV) does not allow its properties to disclose occupancy rates. Axiometrics readjusts AIV's occupancy data after each quarterly earnings release. Between releases, we apply the average REIT growth rate in each market to AIV's properties. We apply the submarket's average growth rate if there is no REIT presence in the market.

Remember that rent and occupancy levels in those files are not same-store throughout time, but the growth rates are same-store for each month. You may view how the unit counts change at the bottom of the Effective Rents tab. The file with "Rolling 13 Month" in the name represents annual changes by month.

 

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