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Market Reporting that Matters

August 2017 Market Trends

Apartment Performance Still Quite Stable

Monday, September 11, 2017


Effective rent growth dips from the previous month in 29 out of the 50 major apartment markets led to a decrease in the national rate in August, which has been typical in August in all but the most booming years.

August’s rate of 2.2% was down 19 basis points (bps) from July’s 2.4% and was 66 bps lower than the 2.9% of August 2016. Despite, the decline, apartment market performance remained remarkably stable this year, with rent-growth rates staying within a 41-bps range since November 2016.



YTD Rent Growth Starts
Late-Year Drop

Richmond’s Resurgence

Shake-Up Near the Top


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A late-summer decrease of 10-30 bps has occurred in each year except two since 2009. The rates dropped 11 bps from July-August 2009, 31 bps in 2011, 5 bps in 2012, 21 bps in 2013, 5 bps in 2015 and 28 bps in 2016. The only two years in which the rate increased from July-August were 2010 (+86 bps) and 2014 (+29 bps) – the years the market were climbing to the peaks of this cycle.

As mentioned, annual effective rent growth dropped from July-August in 29 of the top 50 markets, including seven of the 10 markets with the highest August annual rent growth. Sacramento was again the rent growth leader, but its 7.2% rate was the lowest at the No. 1 position since January 2013, when Houston took the honors with 7.0% growth.

Speaking of Houston…

The August data did not reflect any apartment market performance impact from Hurricane Harvey, as almost all of the data acquisition process took place before the storm made landfall. September’s data will have the initial effects of the devestation Harvey wreaked on Houston and the rest of Southeast Texas.

But an analysis from RealPage Chief Economist Greg Willett stated that the 47,000 vacant units in the Houston area will likely alleviate some of the demand for apartments from residents whose homes or apartments were damaged or destroyed by the flooding.

Although in August, Houston continued to inch back, with effective rent growth up 18 bps to -1.7%, the “highest” it has been since May 2016. Occupancy remained at 92.1%, though that is likely to rise in Harvey’s aftermath, as some units have been taken out of commission and others are absorbed by displaced residents.


Year-to-Date Rent Growth Starts Late-Year Drop

Year-to-Date (YTD) rent growth always declines as the year draws to a close, but the decreases usually start in September or October. 2017 is different, as YTD rent growth declined 5 bps in August to 4.0%.

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That rate was the lowest August YTD number of the post-recession period, 21 bps behind the 4.2% of 2013 and 29 bps lower that last year’s 4.3%.

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August’s YTD rent growth was 75 bps behind the post-recession average of 4.8%.

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Meanwhile, the occupancy rate remained the same in August as July, 94.9%, though that represented a 26-bps decline from the 95.2% of August 2016.

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Richmond's Apartment Resurgence

To say that the Richmond, VA apartment market performance has made a comeback in the past year would be an understatement. An exceptional rise in job gains and job growth, combined with a limited amount of new supply has lifted Virgina’s capital into the top 10 for effective rent growth among major markets the past few months.

Richmond apartments’ annual effective rent growth was 4.4% in August, some 158 bps above the 2.9% recorded one year earlier. The occupancy rate also has spiked, reaching 95.9% last month, up from 95.1% in August 2016 and 93.3% in August 2014.

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The reason for the rapid rise in Richmond’s apartment market performance is simple: Demand has surged while very little new supply has entered the equation. Richmond employers added 17,100 jobs in the 12 months ending July 2017 (the latest local data available) and 28,400 jobs in the two years ending July. Those new jobs translated to 2.6% annual job growth in July, far above the 1.5% recorded for both the nation and the commonwealth.

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While Trade, Transportation and Utilities has the most jobs in the area – thanks largely to the headquarters of Dominion Energy, a large electricity provider in Virginia – the highest job growth rate is found in the Construction supersector, in which 7.7% more jobs existed in July 2017 than in July 2016.

Many of those construction jobs have likely been created because of the impending development of the Atlantic Coast Pipeline, a 600-mile transport of natural gas between West Virginia and southern North Carolina. Its path runs through the center of Virginia. Dominion Energy is a part of the joint venture that will build the project, with construction starting within the next couple of months.

Also starting construction is a new 29,000-square-foot building at the American Civil War Museum, which will feature a new main exhibit hall and a preservation center.

So all the new construction workers require living quarters, but the Richmond apartment supply chain is small, Just 1,401 new units are scheduled for 2017 delivery in Richmond, down from the cyclical peak of 1,734 delivered last year. Construction is slated to ramp up a bit in 2018, where 1,604 units have been identified as of Aug. 31.

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While apartment construction is slow, the market for single-family housing seems to be booming. Permits for these homes increased by 11.2% from July 2016-July 2017, and 11.5% the year before that.

If Richmond’s job growth continues as it has, the demand for Richmond apartments will likely cause more units to be built in the next couple of years. And effective rent growth and the occupancy rate would remain high.

A Shake-Up Near the Top 

Riverside, CA had recorded the second-highest annual effective rent growth among major markets for 13 straight months, from July 2016-July 2017. However, rent growth in California’s Inland Empire has been moderating since last September, keeping the No. 2 spot because other markets also were declining or could not grow fast enough to catch up.

Until August. Riverside’s 128-bps decline to 4.6% rent growth dropped the market to No. 6, as Las Vegas, Long Island, Orlando and Phoenix surpassed it.

Las Vegas was No. 3 in July, and was one of the three metros in the top 10 for rent growth to increase its rate in August. Long Island’s 72-bps rise to 4.7% boosted it from No. 10 to No. 3 and became the first East Coast metro to reach the top three in recent memory.

Columbus, OH returned to the top-metros chart at No. 12, with 3.9% rent growth, while Denver ended its long absence from this chart, leaping to No. 15 with 3.2% rent growth.

Hartford and Los Angeles dropped off the list, as L.A. fell to No. 19 and Hartford plummeted to No. 27.

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