How 7 Under-the-Radar Apartment Markets Have Changed

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How 7 Under-the-Radar Apartment Markets Have Changed

Revisiting Some Smaller Metros

By Carl Whitaker | Tuesday, January 31, 2017

The dynamics of individual apartment markets can often change significantly as time passes. Tremendous shifts have occurred in the past year in markets such as the San Francisco Bay Area, New York and Austin on the downward side, and Riverside, Las Vegas and Detroit on the upward side.

Changes can also be found in smaller metros, seven of which were highlighted in last July’s article7 Under the Radar Apartment Markets.”  Given the changing dynamics of the market throughout the latter half of 2016 into 2017, we revisit our initial discussion on these cities, this time from more of an operator’s perspective.

Under the Radar Metrics Table

Ann Arbor, MI

No metro among Axiometrics’ top 120 (based on number of units) exhibited stronger annual job growth than Ann Arbor, which has added jobs at a 5.6% clip as of November 2016, compared to 1.6% nationally. Comparing Ann Arbor’s employment base of 115,000 to the national base is a bit of an apples to oranges comparison, but the growth is remarkable compared even to similar-sized metros. By comparison, Deltona, FL had the second highest job growth (4.3%) with an employment base of 82,000.

The strong job growth may come with a slight caveat for prospective renters. Ann Arbor’s average rent as of December 2016 ($1,064) is higher than nearby MSAs Detroit ($919) and Warren ($966). Additionally, the exceptionally high occupancy rate (97.5%, second highest in the nation) means finding a place may prove somewhat challenging in the short term.

Athens, GA

In our initial write-up, we noted Athens’ robust annual job growth as of June 2016 (4.0%). Although job growth slowed to 3.5% as of November, that number is still well above the metro’s long-term average of 0.8%. That job growth has translated to rising occupancy rates. Annual average occupancy in 2016 was 95.9% - about 90 basis points (bps) above the annual average in 2015.

Being a smaller market, Athens has not received a substantial amount of new supply in recent years and only 282 units in 2016. The relative lack of new supply coupled with strong job growth typically translates to rising occupancy rates and increasing rent. That has certainly been the case in Athens. The annual average rent growth in 2016 (4.8%) was well above its long-term average of 0.3%.

Cape Coral, FL

Cape Coral has been one of the hottest apartment markets in the nation since 2013.  Rent growth reached as high as 11.4% and 11.1% in 2014 and 2015, respectively, in response to job growth of 7.0% and 4.9%. A relatively small amount of new supply (1,205 units) between 2009 and 2014 – a byproduct of the housing bubble – also helped contribute to this swell in rent growth.

Annual job growth returned closer to its long-term average (2.8%) by recording 2.9% in November. The slowing job growth combined with the influx of new supply in 2015 and 2016 (2,466 new units in two years, compared to a total of 1,205 units in the previous six years) has caused rent growth to slow substantially in 2016. While Cape Coral’s annual average rent growth in 2016 was 5.1%, the December year-over-year rate was 1.1%, which may be indicate that the metro is returning to more sustainable performance levels.

Chattanooga, TN

Chattanooga’s 3.5% job growth in 2015 was the metro’s best rate dating to 1999, although annual job growth as of November 2016 has slowed to 1.3%. The strong job growth in 2015 was perfectly timed with a large influx of new supply (the 2015 inventory growth in Chattanooga was 3.6%) and occupancy rates held steady from 2015 to 2016 (both with an annual average of 95.5%).

The Chattanooga MSA has experienced steady population growth in recent years, increasing from 529,000 in 2010 to 548,000 in 2015, a 3.5% rate. Supply also has increased in accordance with this population growth, as a total of 1,635 new units have been delivered over the past two years. It will take some time to fully absorb new supply delivered in 2016, as forecasted annual average rent growth (1.8%) and occupancy rates (94.8%) will be down from previous years, but the outlook beyond 2017 looks favorable for Chattanooga.

Reno, NV

Reno’s robust job-growth rate has continued, recording 4.1% in November after finishing 2015 at 4.3%. As one would expect, such strong job growth has helped rent growth considerably. What may be surprising is the level of rent growth Reno has experienced, as 2016 ended with an annual average rent growth of 11.7%. And even with new supply being added - 728 units in 2015 and 696 units in 2016 - the Reno MSA has been able to keep up with steady absorption rates. 

It is expected that Reno, like most other metros, will eventually return to somewhat more sustainable levels. However, the economic push to diversify the local economy appears to be paying dividends for the time being, with the Professional and Business Services employment sector experiencing annual growth of 10.6% as of November 2016.

Savannah, GA

Not unlike the other Peach State metro on this list, Savannah has been fortunate to enjoy substantial job growth in 2015 and 2016. Savannah’s annual job growth as of November 2016 was 4.1%, higher than the already strong 3.7% of one year earlier. Job growth in both the Professional and Business Services and the Leisure and Hospitality sectors have been key drivers of this growth – the former adding jobs at a 12.6% annual rate and the latter at a 6.7% annual pace.

Savannah has been no stranger to new supply in recent years. A total of 343 units were added in 2016, but a staggering 775 units (an inventory growth of 3.4%) were added in 2015. While this new supply has been absorbed relatively well throughout 2015 and most of 2016, the sheer amount of new supply may cause rent growth to slow somewhat if job growth slows in 2017.

Tacoma, WA

Discussions on Tacoma apartment performance are typically glazed over in favor of nearby Seattle. But as positive as the narrative has been for Seattle over the past two years, Tacoma’s is even more impressive, with annual average rent growth of 9.0% in 2016. This can be attributed to strong local job growth (2.7% in the 12 months ending November 2016) and relative affordability compared to Seattle (Tacoma’s rents are about $460 less than Seattle).

It goes without saying that 9.0% rent growth is not sustainable and moderation is to be expected. The good news for Tacoma is the landing will be soft. Rent growth in 2017 is forecast to average 5.8% throughout the year, and 2.8% in 2018 (essentially in line with its long-term average).

Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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