Apartment Market Has Strongest Quarter Since 2000
Effective rent growth was 2.4% on a quarterly basis nationwide in April-June 2014, the highest quarter-to-quarter rate since the 2.9% of July-September 2000. Occupancy in the second quarter of 2014 was 95.0%, the strongest since the first quarter of 2001 (95.6%).
Both rent growth and occupancy exceeded expectations.
“The year started slowly for the apartment market, perhaps due to weather, but it experienced a major reacceleration during the second quarter,” Axiometrics Vice President of Research Jay Denton said, referring to the major winter storms and bitter cold temperatures that gripped much of the nation during the early part of the year. “Effective rent growth was soft in January and February, but the period from March through May was the one of the strongest three-month stretches we’ve seen in the 19 years we’ve been tracking apartments.”
Another reason for the strong apartment performance just may be the falling home-ownership rate, Denton added. U.S. Census Bureau statistics show that the home-ownership rate in the first quarter of 2014 was 64.8%, the lowest in 19 years – since the second quarter of 1995, when the rate was 64.7%.
“Demographics, along with the increasing choice to rent rather than own, continue to play in the favor of apartments,” Denton said.
The second-quarter effective rent growth was a big improvement from the first-quarter quarter’s 0.5%, an increase from the -0.9% recorded in the fourth quarter of 2013, measured on a quarter-over-quarter basis. Occupancy was up 60 basis points from the first quarter’s 94.4%, ending a two-quarter streak of decline.
Annualized effective rent growth was 3.3% in the April-June 2014 time frame, up from 2.9% in the January-March period. That matches the second-quarter 2013 rate and marks the second straight quarter in which the annualized effective rent growth has increased.
These increases are taking place with 180,000 new units having been delivered in the past year.
“There is more supply on the way, but the apartment market is merely returning to a more ‘normal’ level of construction,” Denton said. “It is important to note that total residential construction, including single-family homes, is still well below the historical norm. This prolonged period of lower-than-normal residential construction has allowed apartment occupancy rates to surge to a level not achieved since 2001.”
The second-quarter strength is further confirmation that, as Axiometrics has reported previously, the rental base is changing, Denton added. Most of the new units are geared toward higher-income individuals.
Most of these high-rent submarkets are in the urban core, where many millennials and others like to live to be closer to their work and play. Also, many in this age cohort group like the flexibility of renting versus owning, while others might be falling victim to stringent mortgage-lending requirements.
But, Denton said, the renters outside the core are staying put, and they, too, might not quite make the mortgage-qualification standards because of credit and/or income issues.
For more information, including the top performing markets, visit Axiometrics.
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