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Market Reporting that Matters

June 2017 Market Trends

Sunny Outlook for Summer 2017 Rent Growth

Tuesday, July 11, 2017

 

The summer of 2016 was not kind to those with a vested interest in apartment market conditions. Annual effective rent growth was in the middle of its fall from the peaks of 2014-early 2016 back down to below the long-term average for a couple of months, although occupancy was still well above 95%.

But if last summer was equivalent to a rainy vacation with the pool closed, this summer seems to be a lot sunnier. Though rent growth was below last year’s levels in June, the trend is up instead of down, and some metros that were in free fall one year ago are climbing their way back to positive outcomes.

 

IN THIS ISSUE

Year-Over-Year Occupancy Declines

Many Metros’ Occupancy Well Below Peak

Hello, Columbus

Annual effective rent growth was 2.5% in June, an increase of 26 basis points (bps) from May’s 2.2%, but 104 bps lower than the 3.5% of June 2016. The latest rate was the highest since October 2016, when the nation recorded 2.6% rent growth as part of its downward trajectory.


  
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However, the sunny side of the metrics is the month-over-month rent-growth figures, an entirely different calculation from the annual numbers, as it includes properties on the market for two months, as opposed to 13 months. 

The monthly numbers show 0.8% rent growth in June, a 17 bps increase over the 0.6% in June 2016. The difference had ranged from 7 to -4 bps for four of the previous five months of 2017. A -24 bps difference in March was the outlier.

That the monthly rate has increased over the same month in the previous year’s figure three out of six months in 2017 is a positive sign for investors and owners, considering they decreased in 13 of the 15 months from October 2015-December 2016.


  
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While month-over-month rent growth this year has not reached the half-year peaks of 2015 and 2016, the chart above shows how the seasonal downward slope began in April last year, and it still hasn’t started as of June in 2017. The could indicate a good July.

Meanwhile, among metros’ annual effective rent growth rates, the San Francisco Bay Area’s rebound continued in June. San Jose apartments rented for 2.3% more than they did one year ago, while San Francisco’s 1.2% rent growth was its highest rate since May 2016 and ended a string in which rent growth was negative in nine of the previous 10 months. Oakland, meanwhile, recorded its highest rent growth, 1.7%, since July 2016.

Houston suffered negative rent growth for the 15th straight month, but the arrow is moving up. Its -1.9% growth in June was the first time since May 2016 that the number was higher than -2%.

 


Year-Over-Year Occupancy Declines

While June’s occupancy rate of 94.9% was essentially the same as May’s and is close to the point considered “essentially full,” the fact is that occupancy is not growing as fast as it was a few years ago.

The latest rate was 1 bps below the May figure, but 25 bps below the 95.2% of June 2016. The year-over-year gap has been in the same vicinity throughout the first half of 2017.



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Many metros have also experienced occupancy declines. The article below dives deeply into market comparisons.

Meanwhile, Year-to-Date (YTD) effective rent growth increased 79 bps to 3.8% in June, lifting it above 2013 and to within 5 and 6 bps of 2012 and 2016, respectively. The gap between the June 2017 and the post-recession average narrowed to 18 bps from 26 bps in May.



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Many Metros' Occupancy Well Below Peak

Those who keep an eye on multifamily market trends have probably noticed a wealth of literature focused on slowing occupancy rates in recent months. Seeing that national year-over-year occupancy rates have dropped 25 basis points (bps) from June 2016 to June 2017 (95.2% and 94.9%, respectively) there is veracity in those claims.

Generalized market trends are useful from a 30,000-foot-view perspective, but such broad views do not necessarily paint the whole picture. In other words, saying that all markets across the nation are experiencing softening occupancy rates can be misleading.

There are a few perspectives from which this market trend can be examined.

If comparing current occupancy rates to peak occupancy rates in recent years, then yes, most major markets are experiencing occupancy rates lower than their peaks.

Considering some of the nation’s largest markets, let us quickly look at peak occupancy rates during the current cycle.



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Only three markets on the list recorded their highest occupancy rate in 2016, while most markets were at cyclical peak occupancy rates during 2015.

How do these peak occupancy rates compare to current occupancy rates?

 


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All these major markets’ occupancy rates are down from their peak, although the variance between markets is quite large. Houston’s well-documented woes have the market down 275 bps from its May 2014 peak of 95.0%. Washington, DC and San Diego, on the other hand, have managed to pull back relatively close to their peak occupancy rates, both within roughly 20 bps of their peaks.

From a slightly more micro perspective, however, occupancy rates in a select few markets are improving.

Denver has shown a remarkable rebound in occupancy throughout 2016, when Denver’s annual average occupancy rate was 94.7%. That rate has bounced up to 95.1% in the first half of this year – good for a 110 bps improvement since the end of 2016.

 


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While it is fair to say the current occupancy rate in Denver is not as high as the June rate of years’ past, the sheer steepness of the line is indicative of improvement in the market.

San Jose occupancy also has improved significantly. After dipping to 95.2% in December 2016, the market has since climbed to 96.1%.

 


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Although San Jose’s June occupancy rate is not as high as previous years, the more notable feature of the graph is the trend, rather than the absolute number. Increases such as the one shown point to improving market conditions.

Farther up the peninsula, San Francisco’s occupancy rate also has improved since December 2016 approximately 21 bps. While this increase is small in comparison, the general upward trend indicates the most recent wave of supply rippling throughout the San Francisco Bay Area market may be subsiding somewhat.

The key takeaway from this analysis is that occupancy rates in most major markets may not return to their peak level this year. However, it is important to bear in mind that occupancy rates are still healthy in almost all major markets. Furthermore, the trend in a select few markets such as Denver and San Jose may suggest these previously sluggish markets are beginning to improve from their 2016 troughs.

 


Hello, Columbus

Yes, Sacramento and Riverside were yet again the Nos. 1 and 2 major metros for effective rent growth in June, but one surprising entrant on the charts was No. 15 Columbus, OH.

Ohio apartment markets have not been among the top performers on the national stage in recent years, but the state capital’s 64-bps increase to 3.8% was enough to put Columbus on the top-metro table. June’s rate was its highest since April 2016, but the market did not suffer the crippling fall that others did. In fact, its low for the past two years was 2.3% in March 2017.

Columbus’ job growth had been steady (in the lower 2% range) before falling to 1.6% in May – the lowest in the past year, although job growth historically falls as the academic year ends at The Ohio State University. Still, this year’s decline is more severe than last year’s.

However, occupancy was 96.3% in May, seventh highest among Axiometrics’ top 50 markets.

Elsewhere on the charts, Las Vegas’ 122-bps rent growth gain to 5.4% lifted it back to third place among the Axio top 50, up from 11th the previous month. Seattle and Salt Lake City, Nos. 3 and 4 in May, fell to Nos. 8 and 13, respectively. Long Island exited the list, falling from No. 10 to No. 18, making way for Columbus’ entrance.


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Please contact us for any further information. 

Jay Denton

Vice President, Analytics

Email: jay.denton@realpage.com

Main Office: 214-953-2242

 

Stephanie McCleskey

Vice President, Data Acquisition

Email: stephanie.mccleskey@realpage.com

 

 

 

 

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