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Market Reporting that Matters

May 2017 Market Trends

A "Full House" for Apartment Markets

Thursday, June 8, 2017

 

Ninety-five percent is a benchmark for apartment occupancy. It is the level at which Axiometrics considers a property or market “full.” And May 2017 apartment market research shows that the sector once again has a full house.

May occupancy was right at 95.0%, an 11-basis-point (bps) increase from April’s 94.8%, but 29 bps below the 95.2% of May 2016. The latest figures mark the first time that occupancy was 95.0% or higher since September 2016, the last month of a seven-month streak at those levels.

 

IN THIS ISSUE

Rent Growth Still the Same

Free Rent: Lease-Up Concessions Surge

Odessa Hits a Gusher Again


  
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In addition to the overall national market, 30 metros among the Axiometrics top 50, based on number of units, recorded occupancy rates of 95.0% or higher in May, with 14 of those at 96.0% or more. However, occupancy increased year-over-year in only 16 of the top 50 markets.

Most of the metros topping the occupancy charts also have some of the highest annual effective rent-growth numbers relative to the nation. The top 10 occupancy metros in May were:


  
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Two of the five metros in which occupancy has declined are in South Florida – Miami and Fort Lauderdale (West Palm Beach recorded just a 2-bps gain). The other falling markets were Austin, Raleigh and Charleston.


  
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Rent Growth Still the Same

Meanwhile, annual effective rent growth in May stayed almost exactly where it stood in April and in the same general range as it has since December. May’s 2.2% was just 1 bps off from April’s rate. Rent growth has remained in a 19-bps range for the past six months, and in five of those months was in a 6-bps range from 2.12%-2.18%.

This type of steadiness was last seen two years ago, when effective rent growth remained within an 18-bps range, 5.00%-5.18%, from February-September 2015.



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 General stability was characteristic of the Axiometrics Top 50 markets. Rent growth increased by more than 100 bps only in Warren, MI (+122 bps), while it decreased by more than 100 bps only in Anaheim (-114 bps). Some 31 metros recorded rent-growth changes in the +25 bps to -25 bps range.

In other words, steady.

Year-to-date (YTD) effective rent growth increased 73 bps to 3.0% in May, above only the May rate in 2010 and equal to that of May 2013. May’s YTD rate fell 30 bps shy of the post-recession average of 3.3%.



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Free Rent: Lease-Up Concessions Surge

It’s no secret that rent concessions are on the rise nationally, but before you deem this further evidence of a weakening multifamily environment, consider this: the more properties that are in lease-up the higher the concession offerings, regardless of underlying market strength.

Consider, for example, the case of Atlanta, where rents grew by annual rate of 3.7% in May (more than 150 basis points above the national average).



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Atlanta lease-up properties offered, on average, 6.3% off the asking rent in May — the largest concession offering in the metro area this cycle. However, there were also 57 lease-up properties in May, the largest number of properties in lease-up this cycle.

Likewise, the Dallas market — strong by all accounts on the demand side — also is seeing large concession offerings in the face of a ramp-up in new supply.


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On average, lease-up properties in Dallas offered 7.6% off the asking rent in May, based on 78 properties. While a step down from the cycle high of 88 properties in February, there are more properties in lease-up today than at any time between 2010 and November 2016.

Alternatively, look at Seattle, one of the top-performing apartment markets in the country.


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In Seattle, the average concession value was only 3.8% in May, and only 35 properties were in lease-up — which is still a relatively large number of properties given the size of the market.

Lease-up properties work in a slightly different manner than stabilized properties. The goal of many lease-up properties is to fill as many units as quickly as possible, so sizable concessions (e.g. two weeks’ free, one month free, etc.) are not necessarily as rare for lease-up properties as they are for stabilized properties in favorable market conditions.


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As the above graph shows, while concession offerings among lease-up properties are at their cycle high in Atlanta and Dallas, concessions among stabilized properties are virtually non-existent (although part of this is attributable to the rise of revenue management software). If higher concession values result from increased competition (i.e., larger levels of new supply), then the vast gulf between stabilized and lease-up concessions demonstrates that the bulk of competitive pressures is currently concentrated among new properties. This also explains why Class B and C assets are outperforming Class A in many markets around the country.

 


Odessa Hits a Gusher Again

The Odessa, TX apartment market was among the top rent-growth metros in the country four years ago. Its annual effective rent growth was 19.0% in June 2013 as the energy industry on which the market is dependent thrived.

Then, oil prices started their free-fall in June 2014, not bottoming out until January 2016. Rig counts, and therefore jobs in the oilfields, dropped precipitously. The apartment market in Odessa – as well as other oilfield markets such as Midland, TX; and Williston, ND – more than felt the effects, with Odessa rent growth reaching a low point of -29.8% in February 2016.

In the five quarters since, oil prices have stabilized at about $50 per barrel, rig count has more than doubled and the jobs are returning. So has Odessa’s apartment market. The West Texas metro recorded 10.9% rent growth in May, the second-highest among metros not in the Axio Top 50. That’s a 4,069-basis-point increase in 16 months.

The major-metro rankings were…well…steady, like the national market. The top four – Sacramento, Riverside, Seattle and Salt Lake City – remained the same, while Orlando, San Diego, Fort Worth, Phoenix and Nassau-Suffolk (Long Island) stayed in the top 10, though some were in different positions.

The biggest movements featured the two markets referenced in the rent growth section near the top of this newsletter that had the largest increase and decrease. Warren’s 122-bps rise moved it from No. 16 to No. 7, while Anaheim’s 114-bps change dropped it from No. 6 to No. 16.


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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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