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On the Move: The Top Active Lifestyle Apartment Markets

By Carl Whitaker | Thursday, March 2, 2017

 

The term “active lifestyle” has become increasingly common in the general American lexicon in recent years, although finding a concise definition proves to be rather difficult.

Being deemed an active lifestyle city can have a direct impact on a metro’s apartment market in terms of job growth. When given the choice, people are more likely to choose an area that provides more opportunities to be active (all other things being equal), and employers prefer to locate in active cities so they can offer that lifestyle as an amenity to current and prospective employees.

Using an analyst’s selection (determined by various publication rankings as well as geographic and size diversity), the 10 cities that made the “active” cut are listed below:

 

The inclusion of cities with colder climates – Minneapolis and Madison, particularly – may surprise some readers. A city with an average January high of 24 degrees may not strike many as an active lifestyle magnet, but Minneapolis for instance has been lauded for its wealth of active lifestyle options, including an abundance of farmers markets, playgrounds and recreation centers.

The apartment performance of these active lifestyle markets compares favorably to national performance during the recovery. Rent growth in the selected lifestyle markets has outperformed the U.S. every year since 2010. In fact, the annual average rent growth in these lifestyle markets was 4.9% - a full 161 basis points (bps) higher than the national average.


Each market’s respective performance in recent years exhibits some nuances.

Denver and Portland, for instance, have shown exceptional rent growth, averaging 7.0% over the past five years. In comparison, Pittsburgh’s five-year average rent growth was 1.9%. Generally speaking, these markets have all had strong apartment market performance in recent years.

Even within that context it’s important to remember that the past five years have been almost unprecedented in the apartment market. Take Pittsburgh as an example.  Although 1.9% sounds low, the five-year average is still 50 bps higher than Pittsburgh’s long-term (1998-2015) average of 1.4%. In short, many slower-growth markets are outperforming historical levels.


Regarding each specific market, the following briefly sums up each market’s five-year performance, its current performance, and its forecasted performance for 2017.

Atlanta, GA: Atlanta came out of the recession swinging, both in terms of rent growth and new supply. The metro continued to add jobs, which helped drive rent growth and new supply – two variables typically inversely related with one another. It is probable that Atlanta will eventually cool off, especially in light of new supply that continues to be added (2017 is forecasted to have a total new supply of over 13,000 units).

Denver, CO: Denver was one the apartment market’s top performers in 2014 and 2015 with incredible rent growth of 8.8% and 9.7% in those years, respectively. Denver’s long term average (1998-2015) was 2.9% by comparison. Denver is one of those markets that tends to change fast, and 2016 was one of those changing years. Annual average rent growth slowed to 3.2% in 2016, and there will continue to be a glut of new supply in 2017 (inventory growth of 2.9%) meaning Denver will likely continue to have slow growth.

Madison, WI: Best known as the capital of Wisconsin and home to the state’s flagship university, Madison differs from most of the other metros on this list because of its relatively small population. Madison has historically exhibited an exceptionally high occupancy rate, averaging 98.0% in 2016. Interestingly, a location quotient analysis done by the City of Madison (http://www.cityofmadison.com/dpced/planning/documents/v1c5.pdf) shows Madison has twice the U.S. average concentration of sporting goods, hobby, book and music stores – perhaps indicative of the preference for active lifestyles (and the presence of the University of Wisconsin-Madison).

Minneapolis, MN: The Minneapolis metro has posted steady job growth since 2009, and apartment market fundamentals have followed suit. While new supply has not permeated the Minneapolis market to the same extent as other markets, demand has been strong. Rent growth has been comfortably above the metro’s long term average (1.7%) for six straight years, with 3.3% rent growth in 2016.

Orlando, FL: Orlando’s job growth in 2016 (4.0%) was among the best in the nation. This helped the apartment market achieve 5.4% average rent growth in 2016 and a 10-bps increase in occupancy. The forecast for job growth in 2017 is favorable (3.1%), but this moderation means rent growth will likely slow somewhat, too, with a forecast growth of 3.3%.

Pittsburgh, PA: As apartment market fundamentals are largely driven by job growth, the sluggish performance of Pittsburgh’s market is not surprising. Job growth has not surpassed 1.0% in any year since 2012. As such, most metrics, including rent growth (-1.6% in 2016) and occupancy (a 101-bps drop), have also been slow.

Portland, OR: Portland’s 2015 annual rent growth (11.7%) was bound to return to more sustainable levels in 2016, and it did. The good news for operators in Portland is that growth moderated only to a comfortable 6.0%. The good fortunes of 2015 and 2016 have helped attract more development, and more than 5,200 units are forecast to deliver to the market this year -- 2.2% inventory growth.

Reno, NV: Reno’s 2016 performance was among the nation’s best, with annual rent growth averaging 11.7% and occupancy rates increasing 52 bps to 96.7%. This performance has been largely driven by two components – strong job growth and a relative lack of new supply. Expectations should be tempered from 2016 levels, although Reno is forecast to perform above its long term average in 2017 with average rent growth of 2.5%, 60 bps above its long-term average.

Sacramento, CA: Sacramento also has posted fantastic numbers in recent years. While rent growth is expected to moderate, the good news for operators in California’s capital city is that the 4.8% average rent growth forecasted for 2017 is expected to be one of the nation’s best, thanks to another year of solid job growth and relatively little new supply.

Salt Lake City: Despite inventory growth of 2.5% – the highest in the metro since 2009 – Salt Lake City averaged rent growth of 6.4% in 2016. Very strong job growth (3.3%) was the primary driver behind the exceptional year. Job growth will likely moderate to more sustainable levels in the coming years, and the combination of high supply and slower job growth may cause the Salt Lake City apartment market to cool off from 2015 and 2016.

Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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