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AXIO Market Madness: Round of 32

Even More Upsets in the Making

By Carl Whitaker | Friday, March 17, 2017

 

In this series of blogs, Axiometrics has compiled a “Field of 64” in the spirit of the annual NCAA Division I basketball tournaments.

Each of the top 64 metros was ranked based on their cumulative rent growth from 2010-2016 and is represented by a total percent growth over that time. The 2010-2016 effective rent levels represent the market’s annual average rent for each of those years. Each of the metros was assigned a geographic region similar to the NCAA tournament itself respective to its best-corresponding region.

The individual matchups take into account annual effective rent growth as of February 2017. The metro with the highest annual effective rent growth in February 2017 will go on to the next round.

Read the first-round results here. Download a printable bracket here. 


 

North Region

The North Region went according to form in the first round, except for 15-seed Minneapolis defeating 2-seed Boulder. An upset looms on the horizon though, as top-seeded Denver is the region’s only metro with annual effective rent growth below 4.0%.

Detroit is often overlooked in discussions regarding the apartment industry, but annual rent growth in the metro has actually outperformed the national average every month dating to January 2016. Motown’s annual rent growth has been above 2.0% in 67 of the 86 months since January 2010, which may come as a surprise to some readers. In this instance, Detroit’s healthy 4.7% rent growth is enough to dethrone Denver’s 3.2% rent growth.

 

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Salt Lake City versus Minneapolis-St. Paul is an intriguing matchup, given the two metros’ recent performance relative to their long-term performance. Salt Lake City’s long-term average (LTA) rent growth dating to 1998 is 2.2%, and Minneapolis’ is 1.8%. By comparison, Salt Lake City has not dipped below 4.3% in the past year, while Minneapolis-St. Paul has been at or above 1.7% over that same time. Salt Lake City emerges victorious in this matchup, though, with 4.6% rent growth compared to the Twin Cities’ 4.0%.

South Region

The South Region played out as the weakest of the four in the first round, with only one metro achieving annual rent growth above 5.0% in February (Fort Worth at 5.4%).

The immediate matchup that jumps out is Nashville versus Austin, as both of these markets have been among the nation’s hottest in terms of rent growth and – more recently – development activity. Nashville has a comfortable edge in this matchup and advances to the next round. The matchup among the two metros’ music scenes would be much closer.

Intense development levels (i.e. new supply) and strong rent growth are competing ideas though, so the new supply entering Nashville and Austin was bound to cause slowing rent growth at some point. Austin reached 5.7% annual rent growth in January 2016, while Nashville peaked at 7.2% three months later. As of February 2017, that rent growth slowed to 0.6% in Austin and 2.4% in Nashville.

Why such a rapid slowdown for these two cities? While it is rarely one individual factor that causes such a steep drop, the new supply in Nashville (7,100 new units in 2016, a whopping 5.3% inventory growth) and in Austin (9,900 new units in 2016, or an equally staggering 4.7% inventory growth) are the two main components.

 


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Atlanta and Tampa is another intriguing matchup, given the size of these two markets in the region. Atlanta continues to chug along though, with 4.3% annual rent growth – a cool 290 basis points (bps) above its LTA.

 

East Region

The East Region was noted in our initial entry as being a toss-up, given its small variance between the top and bottom seeds. With the exception of Palm Bay, the second round certainly played out according to our expectations with a number of tight matchups.

No matchup played as tightly as 4-seed Orlando and 12-seed Durham. Orlando has a slight edge with 4.54% rent growth compared to Durham’s 4.47%. Orlando has enjoyed healthy rent growth since the recovery, and 2016 was the second best year since 2010 for rent growth.

One of the biggest upsets of the second round sees 10 seed Wilmington defeating in-state Charlotte, which came into the second round as a 2 seed. Charlotte rent growth also has been seen slowing in the face of a new supply glut. In 2016, the market added roughly 8,300 units – an inventory growth of 5.1%. Job growth slowed from 3.1% in 2015 to 2.0% in 2016, which also played a part in the metro’s slowing rent growth.



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West Region

Making the second round within the West Region proved no easy task, and metros such as Salinas, with rent growth as high as 8.4%, could not survive the first round.

Tacoma made waves as a 16 seed, making the second round. Unfortunately for Tacoma, even its outstanding 8.6% February annual rent growth could not cut it against the white-hot Reno market with 12.2% annual rent growth.

No. 11 Riverside and No. 14 Anaheim squared up in a matchup between two low-seeded, yet currently strong Southern California markets. Both markets have enjoyed a period with strong apartment market fundamentals, allowing rent growth to increase throughout 2016 and the early part of 2017. This rivalry would bring up memories of Kansas-Wichita State basketball matchups.

Job growth in Anaheim has been above its LTA (1.3% dating back to 1998) for five straight years. Job growth in Riverside was down slightly in 2016 from previous years, but rent growth has continued to hold strong as annual new supply in Riverside is still down slightly from its pre-recession level.



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Although Anaheim’s 3.2% annual rent growth is strong for the market – especially compared to neighboring Los Angeles’ 2.5% – the Riverside market continues to roll along without a hitch, achieving 6.7% annual rent growth in February.

Los Angeles was able to take down a slumping San Francisco in the first round, but was no match for a Sacramento market that has been outstanding for some time now. To further illustrate the incredibly robust growth Sacramento has been enjoying, February 2017’s annual rent growth (9.0%) is Sacramento’s lowest since April 2015, when the market had yet to pass the 9.0% mark.


Round 2 Results



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Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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