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Market Reporting that Matters

June 2017 REIT Report

REIT Performance Improving Slowly

Slowly and steadily, annual effective rent growth among the publicly traded apartment REITs is improving from the trough of late 2016, while occupancy continues to outperform the nation.

REIT rent growth was 1.4% in June, a 12-basis-point (bps) increase from May’s 1.3%, but 102 bps lower than the 2.5% of June 2016. The difference, though, is that performance level was in a steep decline a year ago, and today’s trend is gradually upward. The latest rate was the highest since the 1.7% of August 2016.

While the REIT rent-growth rate is rising slowly, the overall national number jumped 26 bps to 2.5% in June, widening the gap between the two to 103 bps. The REITS were positively impacted by strengthening Bay Area and Houston apartment market conditions – though Houston is still sporting negative rent growth – and were hurt by declining performance in Dallas, New York and Washington, DC.

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And with the improvement in rent-growth came a milestone in average REIT effective rent: It has surpassed $2,000 for the first time, ending June at $2,018. The June average was $22 higher than in May and $29 higher than June 2016’s average. Four of the eight tracked apartment REITs had averages of more than $2,000, and one other was within $22 of the mark.

The average REIT unit cost about $700 more per month than the overall national average rent. Of course, some apartment REITs’ portfolios comprise properties that are Class A and/or located in higher-rent submarkets, generally in the urban core.  

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

  • Sacramento, CA (9.4%)
  • Riverside, CA (6.2%)
  • Las Vegas, NV (5.4%)
  • Orlando, FL (5.0%)
  • Phoenix, AZ (5.0%
  • San Diego, CA (4.9%)
  • Fort Worth, TX (4.9%)
  • Seattle, WA (4.7%)
  • Jacksonville, FL (4.5%)
  • Warren, MI (4.4%)

MSAs underperforming the national average included:

  • Charlotte, NC (2.4%)
  • Dallas, TX (2.4%)
  • San Jose, CA (2.3%)
  • Boston, MA (2.1%)
  • Chicago, IL (1.8%)
  • Nashville, TN (1.6%)
  • Washington, DC (1.3%)
  • Austin, TX (0.3%)
  • New York, NY (-0.8%)
  • Houston, TX (-1.9%)

Occupancy Holds Steady

The apartment REIT occupancy rate was 95.8% in June, just 2 bps lower than May’s rate. Reflecting national trends, the latest rate was 13 bps lower than the 96.0% of June 2016.

The year-over-year decrease was not as pronounced as that of the overall national apartment market, which recorded a 25-bps year-over-year drop to 94.9%. A recent Axiometrics study found that most major metros reached their peak occupancy for this cycle anywhere from 10 months to four years ago.

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Meanwhile, apartment REIT Year-to-Date (YTD) rent growth remained healthy at 5.3% in June, a 71-bps increase from May’s rate. Though the figure was below the post-recession June average, it is still outperforming the overall national figure of 3.8%.

The key will come at the end of the year. A season decline in YTD rent growth always occurs, but whether the slope looks gradual like 2013 or steep like 2016 in the chart below will go a long way toward forecasting the 2018 trend.

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June’s YTD growth surpassed only that of June 2016 and was virtually tied with June 2013. The June rates in 2015 and 2014 were the highest at 7.2% and 6.5%, respectively, according to the apartment rental data.

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Monogram Deal is Opportunity for Greystar

Greystar Real Estate Partners is set to purchase Monogram Residential and its portfolio of more than 13,000 apartments for $3 billion, just the latest in a series of apartment-REIT transactions.

Given that more than half of Monogram’s properties are Class A projects in coastal markets, the acquisition by Greystar provides opportunity in an improving apartment market niche.

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Among the coastal metros, Monogram has large concentrations in Washington, DC; Boston; Atlanta; San Francisco; and Southern California. Among interior metros, it has a significant presence in Dallas, Denver and Houston. Additionally, Monogram features the largest share of Class A, luxury units among the apartment REITs tracked by Axiometrics, a RealPage company.

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It’s the market selection that provides the opportunity for Greystar, one of the largest apartment operators in the nation, in assuming Monogram’s portfolio.

The deal, if closed, would bring Greystar into the Providence, RI market and extend its South Florida reach into the West Palm Beach area. It would also bolster the company’s portfolio in high-rent-growth areas in which it already has a strong presence, such as Las Vegas, Atlanta, Anaheim and Los Angeles.

Not to mention the facts that San Francisco and Denver seem to have started rebounding from its recent low points and Houston is gradually ascending back toward positive rent growth, though it’s not there yet.

Greystar’s enhanced presence in high-end, luxury communities in top-tier markets has a large potential for significant returns, since Class A rent growth is on the rise as Class C falls and Class B grows at a slower rate. Moving forward, as new supply levels continue to taper off, Class A assets will face fewer new competitors — all the better for raising rents.

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For major players in the space — like Greystar — with the necessary capital and patience, the moment is right to collect assets ripe for performance strengthening in the not-too-distant future. Considering the underlying strength of the national apartment market (e.g., rent growth moderating, not plummeting; and new supply levels plateauing), there is every reason to believe that Greystar’s strategy will pay dividends.


ESS, MAA, UDR Top the Charts

For the second straight month, Essex Property Trust (ESS) recorded the highest year-over-year annual effective rent growth, with a 5-bps increase to 2.6%. Camden Property Trust (CPT) was second at 2.0%, and Aimco (AIV) was third at 1.9%. Four of the other five REITS were bundled between 1.0% and 1.3%.

Meanwhile, Mid-America Apartments again sported the highest average-trailing-12-month (ATTM) rent growth, 1.8%. Avalon Bay followed at 1.5%, with Equity Residential third at 1.4%.

UDR Inc. continued to have the highest occupancy rate, at 96.7%, some 32 bps higher than second- place ESS’ 96.4%. Those were the only two REITs above 96%.  

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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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