October 2016 Market Trends

Industry News

Market Reporting that Matters

October 2016 Market Trends

Some Bright Light on the Apartment Market

Monday, November 7, 2016

Some rays of sunshine burst through the national apartment market in October, as a six-month streak of annual effective rent growth declines was arrested and signs of stabilization started to appear nationwide. 

October’s 2.6% rent growth was essentially the same as September’s figure, and actually increased 2 basis points (bps) when rounded to two decimals. This was the first time since March that the rate increased. 

October rent growth was 226 bps lower than the 4.9% of October 2015, the point at which the market began its moderation from the peaks of earlier in 2015.


Annual effective rent growth remained above the long-term average of 2.2%. Several other signs point to potential stabilization of apartment market trends in the near future. 

  • Some 42 metros of the Axiometrics Top 120 – based on number of units – achieved annual rent growth of 4.0% or higher – almost double the national long-term average. And that’s as the nation is approaching seven years of increased rent levels.

  • More than half of the 50 most major markets (26) are outperforming the national rate.

  • The 2.8% increase in wage growth reported by the Bureau of Labor Statistics on Nov. 4 could be a boon to property owners and managers; the more people make, the more they can spend on housing.

Occupancy Down as Usual in October

The national occupancy rate fell 23 bps to 94.9%, the first time apartments nationwide have been less than 95% occupied since February. But this is typical for October: Occupancy has declined in the 20-bps range from September to October in five of the seven years since 2009. It declined about 10 bps in the other two years. 

The latest rate was 27 bps lower than the 95.1% of October 2015. But in no way is this a sign of weakening. Some 64 metros among the Axio Top 120 recorded occupancy of 95.0% or higher – the point at which Axiometrics considers a property or market full – in October 2016.

The U.S. Census Bureau provided some optimism for the future when it reported the multifamily construction starts for the 12 months ending in September were 42.5% less than the previous 12 months. Analysts expected a decrease, but not to that extent. Though 2017 is still expected to be the peak year for apartment construction in this cycle, fewer starts now could signify a drop in supply for 2018 – decreasing supply and possibly fostering higher occupancy and rent growth. 

Of course, that could change. The Census also reported a 17.2% increase in multifamily building permits issued for the 12 months ending in September. 

Meanwhile year-to-date (YTD) rent growth continued its usual late-year descent, falling 47 bps to 3.6%. The YTD rate has decreased each October since the Great Recession ended.

October’s YTD performance placed the rate 86 bps below the post-recession October average of 4.5%.

The chart below depicts the post-recession October YTD performance.

Signs of LIfe in Houston, Bay Area

We have written a lot recently about the significant market declines in Houston and the San Francisco Bay Area, and while these areas still recorded negative effective rent growth in October, Axiometrics’ apartment data may be signaling some strengthening in these markets’ futures. 

While Houston’s rent-growth rate declined for the 16th straight month in October, to -3.2%, Class A rent growth increased in October for the second straight month — from -7.0% to -6.4% — while Class B and C rent growth declined to -2.6% and 0.4%, respectively. 

Class A trends have tended to foreshadow these trends for the national and individual markets. Houston’s Class A performance started to moderate before the market as a whole, as evidenced by the fact that Class A rent growth was 0.7% in December 2014, while Classes B and C were at 6.9% and 9.1%, respectively that month.

Turning to occupancy, Class A has remained relatively steady at just below 93.0% since last December. Meanwhile, Class C occupancy has declined significantly since May of this year to 91.2% in October, and Class B occupancy has moderated to with 10 basis points (bps) of Class A after spending much of the year 100 bps higher. The decline in Class C occupancy may be attributable to:

  • The drop in rents may make Class B apartments more affordable, causing renters to upgrade.
  • Class A and B renters may be better prepared to ride out the tough economic times, while Class C renters may be quicker to move back with their parents or couple up with roommates.

Since landlords at new Class A properties are offering up to two months’ free rent to attract new residents, Class A occupancy will likely begin to outperform the other two classes as the market turns. 

And rent growth could increase with the occupancy stabilization – lease-up properties that roll back concessions from two months to 1½ months automatically see 4% rent growth. This trend is similar to that of the market’s recovery from the recession in 2010 and 2011. 

Of course, construction is still going strong in the Houston area – especially in the urban core, so job growth will have to increase its forward momentum before the market truly reverses. Some 20,100 jobs were added in Houston for the 12 months ending in September, the highest gain since November 2015.

The decline in rent growth was halted in the Bay Area in October, as rent growth was -2.7% in both San Francisco and San Jose, higher than September’s -3.1% and -3.4%, respectively. That broke a 13-month streak of decreased rent growth in San Francisco and a 14-month slide in San Jose. Oakland, on the other hand, had a slight decline from -0.7% to -0.9% in October. 

Whether this signals a reversal of fortune by the Bay remains to be seen. But even though job growth has been strong, it is starting to pick up from the reduced levels of earlier this year.

Vegas Rises to No. 3

Las Vegas’ apartment market was late in emerging from the Great Recession. Its economy is highly dependent on tourism and conventions, and it took a while for people affected by the recession to regain the disposable income to travel. The city is also growing as a business hub. 

That growth has lifted Las Vegas to third place among the Axio Top 50 for annual effective rent growth, behind Sacramento and Riverside, which held the top two spots for the third straight month. 

Memphis took a big leap to No. 7 from No. 12 in September, while Charleston leapt four spots to No. 11. Charlotte replaced Nashville on the list of the 17 markets with the highest rent growth.

Please contact us for any further information.

Jay Denton
Senior Vice President
Stephanie McCleskey
Vice President, Research
Main Office: 214-953-2242 

Javascript is not enable. This may affect content rendering. You can enabled Javascript in your Settings Menu.