The Top 5 Military Apartment Markets

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The Top 5 Military Apartment Markets

Multiplier Effect Impacts Places with Bases

By Carl Whitaker | Friday, January 27, 2017

A certain degree of economic diversification is usually desirable for a metropolitan area. But even metros with diversified economies tend to have one or two industries that drive their economic engines. In many metros, a large presence of military-centric employment (i.e. military bases) is one of those key cogs.

The economic impact of a large military base can be surmised by the idea of a “multiplier effect.” Like almost all other major employment nodes, military bases do not exist in a vacuum. Rather, military employees in these metro areas will also shop and live nearby.

Military Market Apartment Fundamentals

The daily activities of these military employees and the families have a spillover effect into other sectors of the local economy. For instance, friends and family will stay in nearby hotels when they visit. The families need medical services, retail goods and housing, further propelling local economies.

To help illustrate the impact of local military installations on the economy of an area, Axiometrics analyzed American Community Survey (ACS) data on military quarters population at the county level and, in Virginia, the city level. These markets were then ranked based on their total military quarters population. The data is available via the 2010 Census Summary file.

Military vs. National Rent Growth

The top five military-heavy metros, and the health of their apartment markets, are described below.

San Diego, CA

San Diego – the largest Metropolitan Statistical Area (MSA) on our list with an estimated 2015 population of 3.3 million – is home to multiple U.S. military installations. The San Diego MSA grew an estimated 6.3% from 2010-2015, meaning the metro is growing fairly rapidly. The city’s location along the Pacific Coast makes San Diego an ideal location for military operations, and the city contains the Naval Base San Diego – the primary port heading up the Pacific Fleet.

The ACS data shows than San Diego County’s military population of 43,597 people is the highest in the nation -- almost double No. 2 Norfolk, VA’s 22,687.

San Diego apartment market fundamentals have been favorable in recent years. Even in 2016 – a year when most metro areas experienced rent growth moderation – San Diego has held up fairly well. San Diego finished 2016 with an average annual rent growth of 5.6%.

While that rate is down roughly 130 basis points (bps) from the 6.9% of 2015, that drop pales in comparison to the slowdown in other California metros. Additionally, 5.6% rent growth is well above the 1998-2015 long term average (LTA) of 3.7% -- the third-highest LTA in the nation. Surpassing this already high LTA further highlights San Diego’s resiliency in recent years.    

San Antonio, TX

San Antonio may not receive the same amount of attention as Texas peers such as Dallas, Austin and Houston, but the impact of local military installations is far larger in comparison. The 2010 Census lists Bexar County with a total military quarters population of 13,841 – the fourth highest total in the nation – with installations such as Randolph Air Force Base, Camp Bullis, and Lackland Air Force Base.

San Antonio had a banner year for new supply in 2016. The 6,300-plus units delivered to the market that year resulted in a 3.7% inventory growth – exceptional for the metro.

Meanwhile, San Antonio has quietly put up stellar job growth numbers in recent years. Job growth in 2014 (3.8%), was an impressive 180 bps above its LTA, and 2015 (2.8%) was still a solid 80 bps above the long-term average. The Bureau of Labor Statistics’ most recently available job growth numbers for Nov. 2016 indicate San Antonio’s job growth has moderated to 1.5%.

Annual effective rent growth in San Antonio has averaged 2.8% since 2010, a full 110 bps above its LTA. The metro has moderated slightly in 2016 from an exceptionally strong 2015, but the year ended relatively strong, with an average annual occupancy (93.7%) and rent growth (2.4%) both above the metro’s LTAs.

Colorado Springs, CO

Colorado Springs’ population (almost 698,000 estimated in 2015) is relatively small in comparison to San Diego and San Antonio, but the impact of local military installations is immediately apparent in the metro. El Paso County – the county containing Colorado Springs – had the eighth largest military quarters population, 10,678 as of the 2010 Census.

The multiplier effect of nearby military installations is fairly obvious, as 4.6% of the metro’s 276,000 employees are employed in the federal government sector. Many of them work at large-scale operations in the area, including the U.S. Air Force Academy (and employers tied to the Academy).

Colorado Spring is in the middle of a phenomenal period of rent growth. The annual average rent growth in 2016 was 9.8% - a staggering 750 bps above its LTA. This strong rent growth has undoubtedly helped revenue growth (an annual average of 10.6% in 2016) reach record levels for the metro.

One reason for the sharp increase in rent growth is the relatively small amount of new supply delivered to the market in recent years. An average of 398 units were delivered per year from 2010-2015. After a year of intense development in 2014 (717 units, although these were quickly absorbed), inventory growth has slowed to 1.0% and 1.4% in 2015 and 2016, respectively. Additionally, the steadily rising occupancy rate (annual average of 95.8% in 2016 compared to the long-term average occupancy of 92.3%) suggests apartment units are in very high demand in Colorado Springs.

Fayetteville, NC

Fayetteville, NC is home to Fort Bragg, which is considered to be among the largest military bases in the U.S. According to the Census, Cumberland County, NC – the county containing Fayetteville – has a group quarters population of almost 6,000, which ranks 11th nationally.

No other metro on this list is as heavily tied to employment in the federal government sector as Fayetteville, another example of the multiplier effect military installations exhibit. Of the 129,000 employees in the metro, a whopping 11.5% belonged to the federal government sector as of 2015.

But the Fayetteville apartment market has recorded negative annual rent growth in four of the six years since 2010, an annual average of -0.8%. Fayetteville occupancy has been among the lowest in the nation at an average of 90.2% dating to 2010.

The good news for Fayetteville is that it appears the tide began to turn as of the end of 2016. The year ended with 1.7% annual average rent growth. Occupancy has also increased significantly in 2016 with an annual average of90.2%, up from 88.3% in 2015.

The changing dynamic in Fayetteville is largely dependent upon one crucial variable – improving job growth. While job growth slowed in 2016, it is still expected to remain positive for only the third time since 2010. From a forecast perspective, this bodes well for the Fayetteville market, which should begin to see apartment market performance strengthen.

Norfolk, VA

Norfolk’s location along the Atlantic Coast makes the city a prime location for naval operations. For Census reporting purposes, Norfolk is a part of the Virginia Beach-Norfolk-Newport News MSA, which has a very large share of federal government employees -- 7.3%.

The military quarters population statistic for Norfolk, VA is reported as an individual city in the ACS Summary File statistics, as are neighboring cities Virginia Beach and Newport News. Combining the total military quarters population of Norfolk (22,687), Virginia Beach (4,669) and Newport News (2,634), the area has the second largest total military quarters population with 29,990.

The Virginia Beach MSA has not seen robust rent growth post-recession, but the numbers have been positive every year since 2012. This is comparable to trends in another major Mid-Atlantic market – Washington, D.C. The MSA has seen quite a bit of new development (albeit nowhere near as much as Washington, D.C.), as inventory growth has been as high as 2.3% in recent years. After stabilizing around 93.5% occupancy early in the recovery period, Virginia Beach has continued to see increasing occupancy rates, and averaged 94.0% in 2016.

Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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