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The Apartment Market Division Series

A Blue Jays-Dodgers World Series?

Thursday, October 6, 2016

Post-season baseball got under way this week with the Wild Card games that saw Toronto beat Baltimore in extra innings and San Francisco get by the New York Mets. That sets up the four League Division Series and the obvious question – who wins the apartment market matchup?  

They play on the field will determine whether the Cubs end their 108-year championship drought, or the Giants continue their even-year domination, or the Red Sox send off Big Papi Ortiz with another World Series title. But in the cities’ apartment markets, each of the Division Series matchups offers a true winner. 

Let’s look at them by series: 

San Francisco vs. Chicago

A year ago, San Francisco apartments would have been a runaway favorite in the performance standings, but a lot changes in a year. The City by the Bay has dropped from double-digit annual effective rent growth last year to -0.5% rent growth in the third quarter, according to Axiometrics’ early release numbers.

The rate of job growth, while still strong, has slowed considerably over the past year, and a lot of new supply is being delivered to the San Francisco market. Occupancy, however, was still strong at 95.6% in the third quarter.

Chicago apartments’ 2.3% annual effective rent growth in the third quarter is down slightly from the same time in 2015, but the story is what has happened year to date. Since January, Chicago rents have climbed more than 10%, more than making up for a poor fourth quarter of 2015. In other words, the 2016 YTD rent growth is equivalent to the Cubs’ 103-win season.

And, in an added touch of hope for long-suffering Cubs fans, the Belmont to Montrose submarket – home to Wrigley Field – had the highest rent growth in the Chicago area in the third quarter, 6.1%.

 

Los Angeles vs. Washington

The Dodgers haven’t been to the World Series since 1988. The Nationals have never been to the World Series, even during their time as the Montreal Expos. In the apartment world, LA has long held an advantage over DC, but the gap is narrowing. 

The Los Angeles Metropolitan Division’s 4.0% rent growth in the third quarter was well over the national rate of 3.0%, while Washington’s 2.4% was below it. However, Los Angeles apartments’ rent growth was 6.7% in the third quarter of 2015, while the DC area reported 1.8% growth during that time. Washington apartments had negative rent growth as recently as the second quarter of 2014. 

Occupancy was very strong in both markets – 95.9% in Los Angeles; 95.6% in Washington. Improved job growth in DC has helped absorbed the massive amounts of new supply in the capital area, but has slowed down a great deal in just the past few months in LA. 

This will likely be a down-to-the-wire series, especially since the Nationals will be missing pitching ace Steven Strasburg. The baseball will likely reflect the tightening of the apartment-market gap. 

Toronto vs. Texas

This is the rematch that baseball fans in two nations have been waiting for. The teams are evenly matched, and we’re eagerly anticipating the gyrations when the Blue Jays’ Jose “Bat Flip” Bautista and the Rangers’ Rougned “Thunder Fists” Odor get back together.

 The apartment market competition isn’t as physical, but Toronto and Dallas-Fort Worth are two strong metros. While the combined DFW annual effective rent growth was 4.8% in the third quarter, according to Axiometrics’ early figures, rents increased by an average of 11.1% in the Greater Toronto Area, according to Canadian rent-tracking company Rentseeker.ca.

Though Dallas apartments’ rent growth was slightly lower than a year ago, the fundamentals are still very strong. Job growth continues to be robust at 3.4% as of August, creating demand that is more than enough to absorb all the new units coming to market – especially in an area with 95.6% occupancy. Toronto’s job growth, meanwhile was 1.7%, but its 98.4% occupancy rate means that its recent surge in construction of Toronto apartments – according to Canada’s Urbanation Inc. – is needed.

Like the area around the Cubs’ home diamond, DFW’s North Arlington submarket – which houses Globe Life Park and the Dallas Cowboys’ AT&T Stadium – is among the top-performing in the market, with 8.9% rent growth in the third quarter.

Boston vs. Cleveland

 The Red Sox became baseball’s late-season darlings as they surged their way to the top of the AL East during David Ortiz’s farewell tour. Meanwhile, Cleveland ran away with the AL Central. But when it comes to apartment markets, there is no comparison.

Although Boston apartments’ annual effective rent growth has fallen from its cyclical highs of mid-2015, it is still the jewel of the Northeast with 3.5% growth in the third quarter of 2015. Job growth is still above the national level, driving demand, but the large amount of new supply that has come to market since 2014 – with no real sign of letup – may be limiting rent growth.

Cleveland, on the other hand, would probably want to focus on the Cavaliers’ NBA championship and the Indians’ playoff run. The metro’s 1.0% rent growth in the third quarter is a function of low job growth, but developers are not building many new properties in the area.

Occupancy is strong in both markets, with Cleveland apartments 96.5% full and Boston at 95.8% of capacity.

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