Apartment Market Rent Growth Falls Below Long-Term Average

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Apartment Market Rent Growth Falls Below Long-Term Average

Predicted Moderation Comes to Pass

By Dave Sorter | Thursday, January 19, 2017

The one bright spot of the decline in national annual effective rent growth recorded in over the past five quarters has been that the rate has remained above the long-term average of 2.2%. But that streak ended in December 2016, when national rent growth was 2.1%, the lowest since July 2010, according to Axiometrics apartment data. 

December 2016 Rent Growth

The decline – 21 basis points (bps) from the November rate of 2.4% and 212 bps from the 4.3% of December 2015 -- has been affecting metro markets across the board. Only 13 metros among the Axiometrics top 50 – based on number of units – recorded higher rent growth in December than they did in November. Just nine metros saw increases from their December 2015 rates, apartment market research found. 

This shows in the rankings of the top metros. In December 2015, all of the 17 metros with the highest annual effective rent growth were at 6.0% or above. Last month, only three major market metros exceeded that figure, while Charlotte, which recorded the 17th highest rent growth, was at 3.5%. 

Not that this was unexpected. Axiometrics has been predicting continued moderation and forecasts 2017 annual effective rent growth to average 2.2% throughout the year. In fact, Axiometrics’ first-of-its kind Apartment Market Outlook 2017 states, among other issues, that rent growth would likely fall below the long-term average at several points. 

Looking to the start of 2017, the trend of strong starts to the year that took hold the past few years could change. An underperforming early 2017 might very well lead to annual rent-growth rates below 2.0% for a few months.

But it’s not all doom and gloom. There are several positive signs for the apartment market. 

  • Though the pace of job growth is down, the Bureau of Labor Statistics’ report that wage growth was 2.9% in December could ease worries about apartment affordability. Rising wages means workers can spend more on rent.
  • Some 36 of the top 120 apartment markets recorded rent growth above 4.0% in December. Though most of these are smaller markets, it’s a signal that the apartment industry is still flourishing in many places throughout the country.
  • Class B and C properties are outperforming the nation, with rent growth of 2.5% and 2.8%, respectively. Class A rent growth of 1.7% brought down the national total. 

However, on the negative side: 

  • The seven metros recording negative rent growth in December included Houston, San Francisco, San Jose, Oakland and New York, all of which are among the largest apartment markets in the nation and, thus, have a large impact on the national rate. Birmingham and Oklahoma City were the other two markets with rent growth in the red.

Occupancy Lowest in 35 Months 

Still above its long-term average was the national occupancy rate, though that has not been immune from the lower overall apartment-market performance. 

The 94.5% occupancy rate in December was the lowest since the 94.3% of February 2014. December’s rate represented a 14-bps decrease from November’s 94.7% and a 27-bps drop from the 94.8% of December 2015. But, occupancy is still well above the post-recession long-term average of 94.1%. While many might simply attribute seasonality to the decline, the occupancy rate has underperformed the prior year’s benchmark every month since May 2016.

December 2016 Occupancy

Sacramento No. 1 for 10th Straight Month 

Sacramento took over as the metro with the highest annual effective rent growth among the Axiometrics top 50 last March. It has held onto the top spot ever since, with December marking its 10th straight month at No. 1. 

Riverside and Las Vegas remained the Nos. 2 and 3 metros, as the West continued to dominate the top of the charts. In all, the top 5 and seven of the top 10 metros lie in the western part of the nation. 

Charlotte and Tampa re-entered the chart in December, while San Diego and Charleston, SC fell off. 

Among smaller markets, Baton Rouge has come on strong, rising from negative rent growth one year ago to 7.7% in December.

Top Rent Growth Metros

 

Dave Sorter

Dave Sorter

Journalist

Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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