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Market Reporting that Matters

October 2017 REIT Report

REIT Performance Climbs Higher

Annual effective rent growth for publicly traded apartment REIT portfolios climbed above 1% in October, the first time above that mark since June, according to apartment rental data from Axiometrics, a RealPage company.

October’s rent growth of 1.1% represented a 15-basis-point (bps) increase over September’s 0.9% and was essentially the same as the October 2016 rate. Like the overall national apartment market, REIT rent growth has been remarkably steady, remaining within a 63-bps range for the past 14 months.


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The gap between national and REIT rent growth tightened to 102 bps in October, as nationwide rent growth remained at 2.1% while the REITs’ rate increased.

Two of the three REIT portfolios in Houston continued to record strengthened performance two months after Hurricane Harvey damaged the homes of thousands of people. In fact, Camden Property Trust’s rent growth rocketed 653 bps from -1.7% to 4.9%. Meanwhile, occupancy has strengthened to the point where two portfolios are 97% or more occupied – Avalon Bay recorded 97.7% occupancy – and the other is 96.9% full. Two of the three REITs with a Houston presence are offering no concessions.

Overall, Houston recorded 2.8% effective rent growth in October, good for 16th highest in the nation among major markets. The Metropolitan Statistical Areas and Metropolitan Divisions among Axiometrics’ Top 50 apartment markets with the highest annual effective rent growth in October were:

  • Sacramento, CA (6.1%)
  • Las Vegas, NV (5.1%)
  • Jacksonville, FL (4.9%)
  • Orlando, FL (4.8%)
  • Richmond, VA (4.3%)
  • Riverside, CA (4.2%)
  • Nassau-Suffolk, NY (3.9%)
  • Minneapolis-St. Paul, MN (3.4%)
  • Fort Worth, TX (3.4%) 

MSAs underperforming the national average included:

  • Portland, OR (1.9%)
  • Charlotte, NC (1.8%)
  • Dallas, TX (1.7%)
  • Boston, MA (1.5%)
  • San Francisco, CA (0.8%)
  • Chicago, IL (0.4%)
  • Washington, DC (0.3%)
  • Nashville, TN (0.1%)
  • New York, NY (0.1%)
  • Austin, TX (-1.1%)

REIT Occupancy Remains Relatively Steady

Occupancy was steady in October, as 96.1% of all apartment REIT units were full for the third straight month. October occupancy was 13 bps higher than the 96.0% of October 2016. The rate dropped 6 bps from September to October when extended to two decimal points, a lower decline than the typical REIT September-October decrease.


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Year-to-date (YTD) REIT rent growth was 3.2% in October, 105 bps lower than September’s 4.2% as the annual year-end dip continued, according to the apartment rental data. The October 2017 rate is tied with the October 2016 figure as the lowest 10th-month rate in the post-recession era.


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October’s YTD rent growth was 187 bps below the post-recession October average of 5.0%.


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The Reasons for REIT Revenue Dominance in Top 10 Metros

The key takeaway from a recent report on REIT revenue growth was even though aggregated REIT rent growth is below the national average, the REITs’ considerably higher occupancy rates have helped them maintain stronger revenue growth than the national market.

Generally speaking, it is true that REITs outperform the market in terms of revenue growth, and have for many years.

In this analysis, we looked at the top 10 REIT markets —Anaheim, Atlanta, Boston, Dallas, Los Angeles, San Francisco, San Jose, Seattle and Washington, DC -- dating to January 2011. Annual revenue growth on a monthly basis was indexed to December 2010 for a total of 82 monthly observations. Across the top 10 markets, that totals 820 individual observations.

REITs outperformed their markets 631 of 820 times, roughly 77% of the total, largely due to the REIT’s strong start to this cycle.

Not all markets behave equally – especially across time – but the 77/23 split indicates a clear trend that REITs achieve the desirable performance one would expect.

What might cause individual markets to outperform REITs in that market in the rare occurrences when that happens though? Flukes? Strategy? Standard irregularities in the market that are likely to pop up from time to time?

The answer is likely a combination of those three factors. And, as always, it is important to analyze the data at a more granular level rather than making generalizations.

Let’s first look at a market that has exceptionally strong REIT performance: Seattle. In the 82 monthly observations, the REIT index has never been lower than the overall market’s. The gap has been increasing in recent years. The REITs were slightly ahead in 2011 and 2012, and then extended the lead from 2013-2017. Although the spread has narrowed in the past few months, the strong start to the cycle has kept REITs’ revenue advantage intact.


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For one, the Seattle market is heavily saturated with Essex Property Trust (ESS) properties. In fact, ESS’ 12,000 units in Seattle is the most that REIT has in any metro. In terms of revenue growth on an indexed basis, ESS has performed exceptionally well in Seattle relative to the market, which has boosted overall REIT performance.

ESS’ portfolio penetrates many parts of Seattle and accounts for roughly 45% of the metro’s REIT-owned units, so ESS’ strength has an obvious impact for overall strong REIT performance in the metro.

Seattle’s REIT advantage can be credited to the fact that most REIT properties are located in the areas of Seattle’s best-performing submarkets: Downtown/Capitol Hill/Queen Anne and Redmond in particular, and Bellevue/Issaquah to a somewhat lesser extent, though the last two have slowed as of late.

A market such as Dallas yields different results. It should be noted that indexed revenue growth for REITs still outperforms the Dallas market 65% of the time (54 months of the total 82) – an unquestionably strong rate – but not 100%. What might be causing that discrepancy?


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Notice how REITs generally performed at or above the market in most months up until early 2015. The script flipped in about the second quarter of 2015 though, and REITs have yet to catch back up. So, what might have caused these lines to flip-flop in 2015?

For one, many parts of Dallas where REITs have the highest concentrations have been hammered by new supply. This 2015 and 2016 dip almost perfectly coincides with the ramp-up in new supply in Dallas, which explains some of the story.

The table below shows data for 2015 and 2016 units delivered by submarket. The total number of units in 2015 and 2016 delivered was then ranked in the next two columns. The final column shows what percentage of all REIT units within Dallas fall in each respective submarket’s boundaries. For example, the final column “Percent of Dallas-Based REIT Units in Submarket” shows that Plano/Allen/McKinney contains 21.6% of all REIT properties in Dallas.

(Note that this table only shows the five submarkets with the highest REIT concentration out of the Dallas metros’ 28 submarkets).


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Except for Carrollton/Addison/Coppell, the submarkets with the highest number of units delivered in 2015 and 2016 were also the areas where REIT properties are located. As such, it’s conceivable that these REIT properties have had to contend with new product. The increased competition has cause REIT revenue growth to slow in these submarkets. Since the REITs are concentrated in these five submarkets (which account for 75% of all Dallas-metro REIT properties), it becomes increasingly evident why the REIT revenue growth line flips with the market revenue growth line around this 2015/2016 point.

For another visual regarding these properties, let’s look at another map.

This map shows REIT properties in Dallas (shaded blue, smallest dots). Red-shaded properties are properties built in 2015 or later. All grey-shaded properties are the largest dots and do not hit either of these qualifications (i.e. non-REIT and built before 2015).


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This market-level view washes out some of the real story, so let’s focus on Oaklawn and Plano/Allen/McKinney – the two submarkets with the most development activity and the largest REIT presences in the Dallas market.


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The concentration of REIT properties (blue) is certainly clustered, but the number of units delivered since 2015 in this area is simply incredible (red dots). With this much competition, it is no surprise that REIT-owned and operated properties have faced stiff competition (likewise creating an uphill battle in terms of revenue growth).

Plano/Allen/McKinney tells a similar story – lots of new supply contending with a highly concentrated REIT area. While the density is not as stark as it is in Oaklawn, the Plano/Allen/McKinney submarket is suburban and therefore less dense by nature.


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This is yet another example of how hyperlocal dynamics affect market performance. In this case, we can see how these local undercurrents effectively roll up to the market level and impact revenue growth.


Camden Achieves High Rent-Growth Status

A year-over-year (YoY) effective rent growth increase of 148 bps launched Camden Property Trust (CPT) into the No. 1 position among the tracked REITs, with a rate of 2.9% in October.

CPT’s meteoric rise in Houston was documented above, but Camden also recorded significant rent-growth increases in Orlando (462 bps to 8.4%), San Diego (446 bps to 5.9%), Atlanta (298 bps to 2.6%) and for its smaller holdings in Corpus Christi (586 bps to 10.9%), another Texas metro affected by Hurricane Harvey.

Avalon Bay (AVB) held second place in the YoY rankings at 1.5% rent growth, while Essex Property Trust (ESS) was third at 1.4%.

Aimco (AIV) led rent growth on an annual trailing 12-month basis (ATTM) with a rate of 2.0%, followed by AVB at 1.5%, and CPT and Equity Residential (EQR) at 1.1%.

ESS was the REIT occupancy leader at 96.6%, followed closely by UDR and EQR (both at 96.5%).


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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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