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Market Reporting that Matters

May 2017 REIT Report

Rent Growth Holds Firm; Occupancy Still Rising

The steady course of publicly traded apartment REIT performance continued in May, as annual effective rent growth remained just above the 1% mark, according to Axiometrics apartment market data.

Meanwhile, REIT occupancy rates increased for the fourth straight month to come within 10 basis points (bps) of 96%.

May’s rent-growth rate was 1.1%, a 31-bps decrease from April’s 1.4% and 247 bps lower than the 3.6% of May 2016. One reason for the drop was the removal of Milestone Apartments from the total REIT calculations, as MST.UN ceased to be a REIT upon its April 28 purchase by Starwood Capital. Milestone had the highest rent growth among REITs for several months before the acquisition closed.

The declining REIT rate, combined with the remarkably steady national rate of 2.2% for a consecutive month, widened the gap between the national and apartment REIT figures to 1.1%. The REITs have now underperformed the nation for 14 straight months.

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On the bright side for investors and owners, average REIT rent increased for the fifth straight month, reaching $1,964 per unit, per month in May, a $20 increase from April’s average, the apartment data showed.

At the market level, rent growth increases in San Jose and Atlanta had positive effects on REIT performance, but greater declines in New York and Anaheim helped set the stage for the overall REIT decrease.

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 (9.1%)
  • Riverside, CA (6.0%)
  • Seattle, WA (5.4%)
  • Salt Lake City, UT (4.9%)
  • Orlando, FL (4.8%)
  • San Diego, CA (4.5%)
  • Warren, MI (4.5%)
  • Fort Worth, TX (4.4%)
  • Phoenix, AZ (4.3%)
  • Long Island, NY (4.1%)

MSAs underperforming the national average included:

  • San Jose, CA (2.2%)
  • Boston, MA (2.0%)
  • Miami, FL (1.9%)
  • Portland, OR (1.8%)
  • Washington, DC (1.6%)
  • Chicago, IL (1.1%)
  • Nashville, TN (0.6%)
  • Austin, TX (-0.0%)
  • New York, NY (-1.0%)
  • Houston, TX (-2.4%)

Occupancy Nearing Benchmark

The apartment REIT occupancy rate was 95.9% in May, up 14 bps from April’s 95.8%, marking the third increase in the past four months and just a tick shy of the important 96.0% mark. May’s rate was 7 bps lower than the 96.0% of May 2016. REIT occupancy has increased from April to May every year since the Great Recession ended, but this May’s increase was the second largest of the period. Only the 15-bps April-to-May increase in 2010 topped it.

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Meanwhile, apartment REIT Year-to-Date (YTD) rent growth fell below the post-recession average in May. The 84-bps increase to 4.6% was 30 bps lower than the May average of 4.9%.

April’s YTD growth was the fifth highest April rate since the recession, with 2015 and 2012 the clear leaders at 4.5% and 4.3%, respectively, according to the apartment market data.

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The latest rate was the third-lowest for May in the post-recession era, ahead of 2013 and 2016.

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ESS No. 1 for Rent Growth

Year-over-year annual effective rent growth for the Essex Property Trust (ESS) portfolio increased by 72 bps in May, lifting it to the top of the REIT chart with a rate of 2.5%.

Avalon Bay (AVB), the April No. 1, was just 10 bps behind at 2.4%, while Aimco (AIV) was third at 1.8%. Only 100 bps separated No. 3 from No. 6 (UDR Inc., at 0.8%).

While Mid-America Apartments had negative year-over-year rent growth, its 1.9% average over the past 12 months led the field. Only 102 bps separated the top seven of the eight remaining REITs tracked in terms of annual trailing-12-month average, with Camden Property Trust (CPT) second at 1.6% and AVB third at 1.6%.

UDR Inc. continued to have the highest occupancy rate, at 96.8%, some 30 bps higher than second-place ESS’ 96.5%.

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Reported Revenue vs. Axio First-Quarter Results

The Axiometrics revenue number is the combined change in effective rent and occupancy growth for each company’s portfolio (same-store properties only). Because the REITs typically maintain a stable occupancy rate close to 95%, the revenue number is dictated mostly by changes in effective rent.

The reported revenue for most REITs in the first quarter of 2017 was close to Axiometrics’ first-quarter surveyed results using the annual trailing 12-month methodology.

While most REITs’ reported revenue strongly correlates with the Axio survey results, Axiometrics’ surveys cannot report on all forms of revenue. For example, the renewal pricing strategy at some companies can affect their turnover rates, causing a shorter or longer lag between Axiometrics’ data and a REIT’s reported revenue. It is important to note that Axio surveys calculate revenue solely based on effective rents quoted for new leases and occupancy.

Total revenues for each company include revenues from renewals and other income, which can cause a discrepancy in the results. This is an important distinction, since renewal rent growth is currently stronger than new-lease rent growth, which caused the gap between the two lines in the first quarter. The chart below, using RealPage lease-transaction renewal data and Axiometrics new-lease data, depicts the difference.  

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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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