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March 2017 Market Trends

Rent Growth Falls Back Below Long-Term Average in March

Monday, April 10, 2017

 

After three months of stability and even increases, national annual effective rent growth retreated to 2.1% in March 2017, below the long-term average of 2.3% and the lowest rate since July 2010.

IN THIS ISSUE

Occupancy Continues Rise

Nashville Outlook Mixed

Bar Lower for Top-Market Ranking

March’s rate represented a 24-basis-point (bps) decrease from February’s 2.3% and a 204-bps drop from the 4.1% of March 2016. The retrenchment was widespread, with only 17 of Axiometrics’ Top 50 markets – based on number of units – recording increased rent growth from February, while one other was flat.


  
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Just five metros had increases of more than 20 bps – including San Francisco, where a 148-bps rise brought the Bay Area metro back into positive rent-growth territory after eight months in the red. On the other hand, 28 metros sustained rent-growth decreases of more than 20 bps between February and March. 

The top gainers among Axiometrics’ Top 50 Markets in March were:

 

Annual Effective Rent Growth

 

Metro

February 2017

March 2017

Gain (basis points)

San Francisco

-0.4%

1.0%

148

Philadelphia

0.8%

1.6%

72

Salt Lake City

4.5%

5.2%

68

Anaheim

3.2%

3.7%

52

Miami

1.8%

2.2%

38

San Diego

4.7%

4.8%

19

Los Angeles

2.5%

2.7%

19

Boston

1.7%

1.9%

18

Source: Axiometrics

The biggest drops among Axiometrics’ Top 50 Markets in March were:

 

Annual Effective Rent Growth

 

Metro

February 2017

March 2017

Gain (basis points)

Hartford

3.6%

1.6%

195

Charleston, SC

4.3%

2.9%

139

West Palm Beach

1.6%

0.5%

112

Las Vegas

5.2%

4.2%

100

Atlanta

4.4%

3.4%

100

Raleigh

3.9%

3.1%

89

New York

0.0%

-0.8%

82

Virginia Beach

2.2%

1.4%

78

Among smaller markets, Odessa had the largest gain, as its 543-bps increase to -1.6% not only removed it from the basement of the rent-growth chart, but also raised the metro above three other Texas markets. Corpus Christi took the bottom spot with -4.6%, with Houston one rung up at -3.4% and El Paso next at -3.1%.


Occupancy Continues Rise

The national occupancy rate increased for the second straight month in March, rising 18 bps to to 94.6% from February’s 94.5%. March’s rate was, however, 38 bps lower than the 95.0% of March 2016. 

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



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Year-to-date (YTD) effective rent growth increased 60 bps to 1.4% in March, above only the March rates in 2010 and 2013. March’s YTD rate fell 21 bps shy of the post-recession average.



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The highest recovery-era March YTD rent growth was recorded in 2011, while the lowest was in 2010 and 2013.


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Nashville Outlook Mixed

Nashville’s apartment market was one of the strongest in the country just one year ago. But its near-term outlook is questionable, considering the extent of new units in the pipeline, which is depressing urban core rent growth and necessitating larger concession offerings.



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Annual effective rent growth in Nashville exceeded the national average from February 2012-February 2017, sometimes to a significant degree, as was the case in April 2016. In March, however, Nashville finally fell below the national average of 2.1% when it recorded 1.7% rent growth.

On the other hand, Nashville is still dominant in terms of job growth and occupancy rates compared to the country as a whole.


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But beneath these positive indicators lurks a troublesome reality: The inventory of apartments in Nashville is set to grow by 5.8% this year — on top of the 5.3% inventory growth rate posted last year. In concrete terms, Axiometrics has identified more than 10,000 new units set to deliver in 2017, compared to 5,600 in 2016.


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With half of these 2017 new deliveries located in Nashville’s urban core, it’s no surprise that urban core rent growth was in negative territory.


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In fact, if we were to exclude urban core properties, March’s annual effective rent growth in Nashville would be 3.0%, as opposed to the 1.7% growth rate with all properties. Visually, Nashville’s urban core stands out as the only submarket in the metro currently experiencing negative rental growth rates.

 


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The onslaught of new supply across the Nashville metro area has increased competitive pressures and, as a result, concession offerings. Among all lease-up properties, concession values are now worth about 6.3% of the asking rent. For lease-up properties within the urban core, the concession value is worth about 13.0% of the asking rent—roughly equivalent to six weeks free rent.



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The impact of new deliveries on concessions is not limited to lease-up properties alone. Among stabilized properties, Nashville features the sixth highest average concession value among the top 50 markets tracked by Axiometrics.

Despite a few of these ominous indicators, the Nashville apartment market is, generally speaking, in good shape. The demographic trends are positive, with a larger share of the prime renter age group in Nashville than in the nation as a whole. The local economy is also strong, with robust metro-level economic growth rates and steady job growth within a relatively diversified economy. 

Notwithstanding some short-term dissonance, Music City’s supply and demand fundamentals should be in relative harmony by the end of the decade.


Bar Lower for Top-Market Ranking

One year ago, Sacramento assumed the mantle as the top rent-growth market among the Axiometrics Top 50 with a rate of 11.6%. Some 17 of the Top 50 metros are listed on the monthly chart, and the March 2016 table found West Palm Beach at No. 17 with annual effective rent growth of 5.7%.

In a sign of how national and metro apartment markets have moderated over the past 13 months, that 5.7% that was the 17th-highest rate in March 2016 would place it No. 3 in the March 2017 rankings. Sacramento was still No. 1 for the 13th straight month in March 2017, but with 8.8% rent growth – some 280 bps below its March 2016 figure.

The No. 17 spot in the latest chart belongs to Richmond, with 3.1% rent growth – 260 bps below the West Palm Beach figure that placed 17th in March 2016. In fact, Nos. 10-17 in March 2017 recorded rent growth at or below 4.0%.

These differences are evidence of how the apartment cycle works. When it’s at its peak, the top markets have higher rent growth figures. When national rent growth reached its high of 5.2% in September 2015, the No. 17 market on our list was Tampa-St. Petersburg, at 6.6% rent growth.

National rent growth is forecast to begin rising again in 2018 and 2019, and when it does the rate of the No. 17 market will likely rise along with it.

Meanwhile, the March 2017 table had some drastic differences from February’s list. Sacramento and Riverside maintained the top two spots, but Salt Lake City rocketed to No. 3 from No. 7, as Fort Worth fell from No. 3 to No. 6. Las Vegas fell from fourth to ninth.

The two surprise entrants in the February chart, Hartford and Charleston, SC, bounced right back off it in March with sharp rent-growth decreases. Indianapolis, Denver and Richmond returned to the list, as Jacksonville also fell off it.


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Please contact us for any further information. 

Jay Denton

Senior Vice President, Analytics

Email: jdenton@axiometrics.com

Main Office: 214-953-2242

 

Stephanie McCleskey

Vice President, Data Acquisition

Email: smccleskey@axiometrics.com

 

 

 

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