December 2016 Market Trends

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December 2016 Market Trends

Rent Growth Falls Below Long-Term Average

Tuesday, January 10, 2017

The one bright spot of the decline in national annual effective rent growth recorded over the past five quarters has been that the rate has remained above the long-term average of 2.2%. But that streak ended in December 2016, when national rent growth was 2.1%, the lowest since July 2010.

The decline – 21 basis points (bps) from the November rate of 2.4% and 212 bps from the 4.3% of December 2015 -- has been affecting metro markets across the board. Only 13 metros among the Axiometrics top 50 – based on number of units – recorded higher rent growth in December than they did in November. Just nine metros saw increases from their December 2015 rates.



Occupancy at Lowest Point in 35 Months


Dallas, Fort Worth Nearby,
but Different

Sacramento No. 1 for 10th Straight Month


This shows in the rankings of the top metros. In December 2015, all of the 17 metros with the highest annual effective rent growth were at 6.0% or above. Last month, only three major market metros exceeded that figure, while Charlotte, which recorded the 17th highest rent growth, was at 3.5%.

Not that this was unexpected. Axiometrics has been predicting continued moderation and forecasts 2017 annual effective rent growth to average 2.2% throughout the year. In fact, Axiometrics’ first-of-its kind Apartment Market Outlook 2017 states, among other issues, that rent growth would likely fall below the long-term average at several points.

Looking to the start of 2017, the trend of strong starts to the year that took hold the past few years could change. An underperforming early 2017 might very well lead to annual rent-growth rates below 2.0% for a few months.

But it’s not all doom and gloom. There are several positive signs for the apartment market. 

  • Though the pace of job growth is down, the Bureau of Labor Statistics’ report that wage growth was 2.9% in December could ease worries about apartment affordability. Rising wages means workers can spend more on rent.
  • Some 36 of the top 120 apartment markets recorded rent growth above 4.0% in December. Though most of these are smaller markets, it’s a signal that the apartment industry is still flourishing in many places throughout the country.
  • Class B and C properties are outperforming the nation, with rent growth of 2.5% and 2.8%, respectively. Class A rent growth of 1.7% brought down the national total.

However, on the negative side:

  • The seven metros recording negative rent growth in December included Houston, San Francisco, San Jose, Oakland and New York, all of which are among the largest apartment markets in the nation and, thus, have a large impact on the national rate. Birmingham and Oklahoma City were the other two markets with rent growth in the red.

Occupancy at Lowest Point in 35 Months

Still above its long-term average was the national occupancy rate, though that has not been immune to the lower overall apartment-market performance. 

The 94.5% occupancy rate in December was the lowest since the 94.3% of February 2014. December’s rate represented a 14-bps decrease from November’s 94.7% and a 27-bps drop from the 94.8% of December 2015. But, occupancy is still well above the post-recession long-term average of 94.1%. While many might simply attribute the decline to seasonality, the occupancy rate has underperformed the prior year’s benchmark every month since May 2016.

Dallas, Fort Worth Nearby, but Different

With old sibling rivalries long-since abandoned, the Dallas-Fort Worth metropolitan area incorporates 13 counties and 14 mid- to large-sized cities under the umbrella of a single geographic unit.

While convenient for measuring regional economic activity, the DFW metropolitan area often obscures important differences between the two largest cities and their suburbs (particularly in real estate dynamics), which is why Axiometrics uses the metro division definitions of Dallas-Plano-Irving and Fort Worth-Arlington. Although both divisions’ apartment markets are in strong shape heading into 2017, careful attention to their similarities and differences will help illuminate where the Metroplex as a whole is headed in the years to come.


Dallas rents grew by 3.6% from December 2015 to December 2015, ending 2016 with average rent growth of 5.1%. A stellar figure like 5% growth would be cause for celebration in most major metros, but in Dallas, where rents grew by 5.9% in 2015, anything less could feel like a disappointment. However, most of the “moderation anxiety” in Dallas is on the supply side, as Dallas had the third largest job growth among the country’s top 25 metros for November.

The Far North Dallas submarket saw the strongest rent growth (7.5%) in 2016 among Dallas’ larger submarkets, while the urban core submarket of Oak Lawn was the weakest (0.5% growth). Whereas Far North Dallas added only 192 units in all of 2016, Oak Lawn added around 2,700 new units — which explains the diverging fortunes between suburban and urban Dallas.


Fort Worth rents grew by 5.2% in December, and ended 2016 with an average growth rate of 6.1%, down from 6.6% rent growth in 2015. Among the largest 50 metros, Fort Worth’s 2016 performance ranked eighth, six places higher than Dallas. Job growth in Fort Worth was 2.5% in November, a strong figure, but 113 basis points lower than Dallas.  

The Fort Worth submarket of North Arlington saw the largest rent growth (9.0%) among the largest submarkets in the metro division. In fact, North Arlington’s performance makes it the second strongest submarket among the 169 submarkets nationally with more than 10,000 apartment units. North Arlington, like Far North Dallas, has benefited from a scarcity of new development in 2016, unlike Southwest Fort Worth, which added the most units in 2016, and recorded rent growth of 4.7%.


Together, Dallas and Fort Worth are engines of economic growth, and the metro divisions’ respective real estate markets reflect this. In terms of rent growth, both markets are performing quite similarly, with Fort Worth ahead by 100 basis points on average throughout 2016. A closer look at the divergence between Dallas and Fort Worth rent growth illustrates the different growth-drivers across metros—drivers that will determine how the Metroplex, as a whole, will perform in 2017 and beyond.

We do this by analyzing the timing and size of the gaps between Dallas and Fort Worth rent growth rates, on an absolute basis:

The first major divergence between Dallas and Fort Worth in the graph above begins in late 2001 and peaks at the end of 2002. This coincides with the tech bubble’s collapse, which plunged both Dallas and Fort Worth into recession. However, this recession was more severe in Dallas than Fort Worth, as Richardson (a Dallas submarket) was heavily exposed to telecommunications-related downturns.  

Although the gap between Dallas’ and Fort Worth’s apartment performance closed considerably following the recession at the turn of the century, we saw some widening as a result of the Great Recession in 2009. As with the previous recession, Dallas underperformed Fort Worth, though both markets experienced negative rent growth.

The third significant gap occured in 2011 and 2012, in which Dallas outperformed Fort Worth, primarily due to the astounding rent growth numbers posted in Dallas’ urban core submarket of Oak Lawn (where rent growth peaked at 12.8% in August 2011). But with the all the new supply delivered in Oak Lawn came a significant softening, which impacted the entire metro area. This, in turn, contributed to a widening gap between Dallas and Fort Worth toward the end of 2016.

Looking ahead, how will Fort Worth and Dallas perform in 2017 and beyond? In 2017, Axiometrics projects rents to grow by 2.7% in Dallas and by 2.9% in Fort Worth. Over the next five years, Dallas is expected to record an average annual growth rate of 3.3%, compared to 3.1% in Fort Worth. Both markets are projected to remain far ahead of their respective long-term averages (1.6% for Dallas, and 1.7% for Fort Worth).

This forecast also shows a much smaller gap between the apartment performance of Dallas compared to Fort Worth. Reproducing the same graph above, but with forecast values added, we can see just how narrow the gap between markets is likely to become.

2017 looks to be a promising year for Dallas and Fort Worth, even if both metro divisions are incapable of reaching the tremendous growth rates posted in 2014 and 2015. Collapsing the differential performance of Dallas and Fort Worth into a single metropolitan statistical area effectively hides the various growth-drivers that have propelled both Dallas and Fort Worth into the big leagues.

Sacramento No. 1 for 10th Straight Month

Sacramento took over as the metro with the highest annual effective rent growth among the Axiometrics top 50 last March. It has held onto the top spot ever since, with December marking its 10th straight month at No. 1.

Riverside and Las Vegas remained the Nos. 2 and 3 metros, as the West continued to dominate the top of the charts. In all, the top 5 and seven of the top 10 metros lie in the western part of the nation.

Charlotte and Tampa re-entered the chart in December, while San Diego and Charleston, SC fell off.

Among smaller markets, Baton Rouge has come on strong, rising from negative rent growth one year ago to 7.7% in December.

Please contact us for any further information.

Jay Denton

Senior Vice President



Stephanie McCleskey

Vice President, Research


Main Office: 214-953-2242 

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