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AXIO Market Madness: Round of 8

The Ultimate Four Punch Their Tickets

By Carl Whitaker | Friday, March 24, 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 themselves take into account annual effective rent growth as of February 2017, according to Axiometrics apartment data. The metro with the highest annual effective rent growth in February 2017 will go on to the next round, eventually crowning an apartment market bracket champion.

The format below includes the metro’s seed in parentheses (1 to 16) and the metro’s name.

Read the first-round results here, second-round results here, and third-round results here.

Download a printable bracket here.


 

North Region

The North Region’s final matchup showcases 4 seed Colorado Springs and 11 seed Spokane, with the winner heading to the national semifinals.

Spokane has maintained very strong rent growth since August 2015, when annual rent growth rose from 2.8% to 4.4%. Since then the metro has had only one month with rent growth less than 4%. A new watermark was set in February 2017, as Spokane’s 7.5% rent growth is the metro’s highest since the recovery.

For those curious as to why Spokane has enjoyed such a prolonged period of healthy rent growth, look no farther than job growth. Spokane’s job growth in 2016 was 3.9%, an astounding 280 basis points (bps) above the metro’s long term average.

Of particular note are the Professional and Business Services and the Education & Health Services industries. Annual Professional and Business Services job growth in December 2016 was a robust 7.0%, while the Education & Health Services rate was a sturdy 5.5%.

It is anticipated that rent growth in Spokane will moderate in 2017, although the forecast annual average growth of 4.4% for the year is favorable.

While there is plenty of great news about apartment market fundamentals in Spokane, Colorado Springs wins our final North Region matchup with 8.1% annual rent growth compared to Spokane’s 7.5%. As one of our last four participants, we will feature an in-depth analysis on Colorado Springs in our upcoming blog entry.


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South Region

The South Region has been relatively quiet in our AXIO Market Madness feature, but two unlikely candidates -- 8 seed Fort Worth and 10 seed Phoenix -- are the two South Region finalists.

Phoenix was discussed in one of our previous entries as a market that was slower to recover than many others, but this has worked out favorably for the metro in recent years. While most other markets across the nation experienced fairly significant moderation, Phoenix’s drop from 2015 (6.8% annual average rent growth) to 2016 (6.3% annual average rent growth) is rather benign in comparison.

Job growth was expected to moderate in 2016 after posting a rather remarkable 3.5% in 2015, but the lack of building early in the recovery period meant Phoenix was able to have a strong 2016. Further good news for Phoenix comes from the Bureau of Labor Statistics’ (BLS) revised job growth numbers, as shown in the corresponding graph. Rent growth is forecast to moderate further in 2017, but the short- to mid-term outlook for the metro is favorable.

 


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Fort Worth has been a relatively quiet market, but is currently in a period of exceptional growth. Long-term-average rent growth in Fort Worth is 2.0%. Compare this to annual average rent growth in 2015 (6.6%, a 460-bps outperformance) and 2016 (6.2%, a 420-bps outperformance) and questions arise as to why Fort Worth has been flying under the radar in national discussions.

Fort Worth’s 5.4% annual rent growth in February surpasses Phoenix’s 4.4%, meaning Fort Worth is the winner of our South Region and will advance to the national semifinals. We will discuss the drivers of Fort Worth’s growth and why such a strong market has been flying under the radar in our next entry.

 

East Region

Palm Bay is the only 1 seed to have made it this far in our bracket. The East Region’s final matchup features 1 seed Palm Bay and a dark-horse 10 seed in Wilmington, NC.

Seeing that six Florida metros made it into our East Region matchup, it probably is not surprising to see at least one of them make it this far. But even against other robust Florida markets, Palm Bay is currently the strongest in the state.

Some of Palm Bay’s current strength can be attributed to the market’s reverse seasonality. While most other markets across the nation see lower rent growth numbers in the winter months, Palm Bay tends to have rent growth buoyed during the winter months from renters looking to escape colder northern climates for a few months. With the market also being relatively small in comparison to other Florida markets, even a minor amount of in-migration helps rent growth.

The chart below highlights this reverse seasonality. Notice that quarterly rent growth goes negative most years during the fourth quarter.



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Rent growth is not driven by job growth in Palm Bay quite as much as it is in most other metros, but strong job growth undoubtedly helps increase rental rates. Palm Bay is currently in a period of strong job creation, with annual job growth at or above 1.8% each of the past three years. Compare this to the metro’s long-term average (0.8% since 1998), and Palm Bay’s remarkable performance becomes increasingly evident.

Palm Bay’s 10.5% annual rent growth easily takes care of Wilmington’s 4.4% and punches a ticket among the ultimate quartet.

 

West Region

The West Region has been the juggernaut of our Market Madness, and it is two of the nation’s highest rent-growth markets that face off in the West Region final – 8 seed Reno and 7 seed Sacramento.

This is Duke vs. Kentucky. Christian Laettner should be at the ready.

The stories driving Sacramento and Reno are strikingly similar. Simply stated, their success has been driven by a combination of robust job growth and a relatively small amount of new supply. Reno’s long-term average job growth (1.1%) is 260 bps below the 2016 annual number, while Sacramento’s long-term average job growth (1.5%) is 150 bps below its 2016 annual number.

Reno is a considerably smaller market than Sacramento, but both markets have had relatively little new supply delivered in recent years. Since 2010, a total of 2,281 units have been delivered to the Reno market (a total inventory growth of 5.0% from 2010-2016). Sacramento has had 4,215 new units delivered over that same time (inventory growth of 2.6%).

A quick look at similarly-sized California apartment markets is fairly telling. Riverside (200,000 units) and San Jose (158,000 units) have had inventory growth of 5.2% and 14.2%, respectively, since 2010. Sacramento’s 2.6% looks rather meager by these comparisons.



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In this matchup, Reno emerges victorious with an impressive 12.5% annual rent growth, compared to Sacramento’s 9.0% annual rent growth. Reno is our second 8 seed of the tournament to qualify for the national semifinals.

Tune in on Friday, March 31 to see who emerges as the national apartment market champion. Here’s the bracket to date.


Round 4 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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