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Market Reporting that Matters

April 2017 Market Trends

National Rent Growth Steady; Bay Area Rises

Wednesday, May 10, 2017


While national annual effective rent growth continued its 2017 trend of steadiness in April, several individual metros have experienced a reversal of fortune in the past few months.

The national rent-growth rate of 2.2% in April represented a 4-basis-point (bps) increase over March’s 2.1%, but a 181-bps decrease from the 4.0% of April 2016. Effective rent growth has remained within a 20-bps range since December, with all of those months at or just below the 2.3% long-term average.


Occupancy Back to 94.8%

Seattle’s Thriving Urban Core

Western Domination

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While national performance is holding firm, movement in many metro markets has been fast and furious – especially in the San Francisco Bay Area.

April marked the first time since June 2016 that all three major Bay Area markets had positive effective rent growth. They had the three biggest leaps in the annual rate from March to April, and three of the five biggest increases since the beginning of 2017 – 508 bps in San Francisco, 385 bps in San Jose and 138 bps in Oakland. In fact, San Francisco’s April rent growth was higher than it was one year earlier, though San Jose and Oakland still have a way to go.

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Job growth bumped up in San Jose and Oakland in March, the latest Bureau of Labor Statistics figures available, and held steady in San Francisco. Occupancy was relatively steady in San Francisco and San Jose, while it exceeded 96% in Oakland for the first time since last August.

Birmingham also has recorded impressive 2017 increases, joining the Bay Area markets in returning to positive rent growth after several months in the red. This metro’s 235-bps rise in the first four months of this year – from -0.7 in December to 1.7% in April – was the nation’s third highest among Axiometrics’ top 50 metros, based on number of units.

On the other end of the scale, three metros with rent growth above 5% last April have fallen on some hard times.

Nashville, which sported robust 7.2% growth in April 2016 has experienced the largest drop in 2017, falling from 3.2% in December to 0.8% in April – 233 bps – thanks to slowing job growth and an abundance of supply.

Las Vegas, while still sporting the 11th highest rent-growth rate among the Axio top 50, has dropped 216 bps this year, falling from 6.1% in December to 3.9% in April.

Austin, despite a 3.3% job-growth rate in March, is the latest metro to record negative annual rent growth, as the amount of new supply is too much to absorb. The April rate of -0.3% marked the first time Austin has been below zero since April 2010.

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Occupancy Back to 94.8%

The national occupancy rate continued its rebound in April, reaching 94.8% for the first time since October 2016. April’s occupancy was 19 bps higher than March’s 94.6% and 43 bps above this year’s low of 94.4% in January. Still, the rate was 33 bps lower than the 95.2% recorded in April 2016.

The increase was to be expected, as occupancy has risen each April since the Great Recession ended.

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Year-to-date (YTD) effective rent growth increased 76 bps to 2.2% in April, above only the April rates in 2010 and 2013. April’s YTD rate fell 22 bps shy of the post-recession average of 2.4%.

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Seattle's Thriving Urban Core

Rents for metro Seattle apartments continue to grow at an enviable pace, contributing to — and partially driven by — a thriving urban core.

Unlike many other urban core submarkets across the country, the Seattle neighborhoods around Downtown, Capitol Hill and Queen Anne have recorded excellent effective rental growth rates, even surpassing the market average at the start of 2017. However, market and submarket strength are governed by demand- and supply-side factors, namely job growth and new supply levels. Seattle and its urban core will be tested on both fronts throughout 2017.

Effective rents in Seattle grew by an annual rate of 5.8% in April, the third strongest rent-growth figure among Axiometrics’ top 50 metros, based on number of units. In 2016, Seattle rent growth neared 7%, a remarkable achievement considering the metro area’s long-term average of 3.1% rent growth.

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Following the recession, in which Seattle’s average rent levels contracted by more than 10%, rent growth surged by 7.2% in 2011 and has remained above 5% ever since.

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For a market accustomed to delivering about 6,000 new apartment units per year, Seattle’s exceptional performance in 2016 is all the more impressive after nearly 11,000 new units were delivered to the metro last year.

Part of Seattle’s current success story is the surprising strength of the metro’s urban core, which includes Downtown as well as the Capitol Hill and Queen Anne neighborhoods.

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Effective rents in Seattle’s urban core neighborhoods grew by 8.0% in April, while the metro area as a whole (excluding the urban core submarket) grew by 5.2%. National rent growth was 2.2%.

This is unusual among urban cores at this point in the current apartment market cycle. Several superstar cities feature urban cores experiencing negative rent growth, including Chicago, Dallas, Denver, Houston, New York and San Francisco.

Most of these struggling urban cores emerged from the Great Recession in remarkable shape: high demand for new, urban apartments combined with low new supply levels in these areas proved the right recipe for exceptional rental growth rates. But these areas began to slow around late-2013 and again in 2016. Seattle’s urban core also moderated during 2013, but rent growth never fell below 2% and certainly never went negative. What’s more, the area got stronger throughout 2016, just as other urban cores were turning negative.

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Nevertheless, the strength of Seattle’s urban core will be tested throughout 2017 as the Downtown area adds the largest batch of new supply since at least 1997 – 6,049 units among 40 properties. From 1997-2015, the urban core neighborhoods added on average about 1,600 new units a year. However, in 2016 alone, the area added more than 4,000 new units. Another 6,000 new units will be delivered by the end of 2017 — an inventory growth rate of over 7%. 

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Will Seattle’s urban core easily absorb the new supply levels given the extent of new supply on the way? The experience of other apartment markets is instructive. Rent growth in Denver’s downtown area peaked this cycle in 2012, when only 494 new units were delivered to the submarket. More than 2,000 new units were delivered the following year (8.9% inventory growth), and rent growth moderated to 2.5% -- a nearly 600-basis-point drop.

On the other hand, consider the case of Atlanta’s urban core, where rent growth peaked in 2014 at 6.5%, the same year that more than 5,700 new units delivered in the submarket (a 7% inventory growth rate). The following year, another 5,000 new units were added and rent growth moderated to 4.0% -- a 250-basis-point decline. In 2016, rent growth fell another 310 basis points in the midst of another 5,000 new units. Compared to Denver’s urban core, Atlanta’s urban core more easily absorbed elevated new supply levels — at least thus far.

Of course, new supply is only half of the equation. We also have to consider the role of job growth in apartment market performance. The number of new jobs added in the Seattle metro increased by 3.2% in March (compared to the year prior), continuing a 25-month streak of over 3% annual job growth.

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Yet, there are a few markets with even better job growth numbers to start 2017, including Dallas, Nashville and Austin — each of which features an urban core submarket with negative rent growth. Why, then, are effective rents in the Seattle urban core growing by 7% when Dallas is adding jobs at a higher rate but its urban core is declining by 1%?

In short, it’s the interaction between new supply levels and job growth: the Dallas metro is adding more jobs at a higher rate, but new supply levels in the urban core grew by 12% last year. Seattle, on the other hand, is witnessing strong job growth — though 85 basis points below Dallas — but only a 5.3% increase in new urban core supply in 2016.

Both sides of the supply/demand equation play a role, but given the underlying strength of Seattle’s job market, much of the current concern surrounds the new supply levels set to deliver in 2017.

Western Domination

The western United States has been the top region for apartment rent growth for quite some time. That domination is evidenced by April’s ranking of metros with the highest rent growth.

The top six markets all are west of the Rocky Mountains, with California boasting four of them. Nine of the 17 markets on the list can be classified as western, five of them in California, with Southern California represented by the Nos. 2, 5, 6 and 12 metros.

Among those is Los Angeles, which re-entered the chart at No. 12 in April after an 86-basis-point (bps) increase from March. That makes three L.A.-area metros among the top 12.

Raleigh and Warren, MI also re-entered the chart at Nos. 13 and 16, respectively, while Indianapolis, Tampa-St. Petersburg and Denver fell off, dropping to Nos. 24, 26 and 23, respectively. Charlotte, Jacksonville and Dallas were Nos. 18-20.

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Please contact us for any further information. 

Jay Denton

Senior Vice President, Analytics


Main Office: 214-953-2242


Stephanie McCleskey

Vice President, Data Acquisition






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