10 Markets with the Greatest Occupancy Loss
Supply growth is outpacing demand in many areas, causing a decrease in occupancy rates. Here is a list of the 10 markets with the greatest loss in occupancy year-over-year as of April 2017.
By Meeghan Fuhr
Rapid supply growth has had an adverse effect on occupancy rates and rent growth in the multifamily market. Recently, we ranked the top 10 markets that outperformed the industry in occupancy growth despite unfavorable market conditions. Below is a list of the 10 markets with the greatest loss in occupancy over the year based on data compiled by Yardi Matrix.
1 Corpus Christi, Texas
The Port of Corpus Christi, Texas, drives the local economy, along with the Naval Air Station and Texas A&M University-Corpus Christi. Despite the diversified economy, the market tops the list for greatest loss in occupancy, likely the result of a steady surge in supply since 2013. Although there has been greater demand for lower-cost rentals, most new supply has been concentrated in high-end units, and this mismatch in supply and demand has caused both occupancy and rents to fall.
2 Augusta, Ga.
Home to Augusta University and Fort Gordon, Augusta, Ga., has a robust economy, and additional economic momentum is expected once the National Cyber Security headquarters is complete in the fall of 2018. With population, employment and rents increasing in 2016, it may be a surprise that Augusta had significant occupancy loss. However, occupancy rates for lower-cost units are outpacing occupancy for upscale units, indicating there is an imbalance in supply and demand in the market.
3 Greenville, S.C.
Greenville, S.C.’s economy has evolved into a hub for the automotive industry. With five foreign-owned tire makers and the Clemson University International Center for Automotive Research, the auto industry has created thousands of jobs and drawn in foreign and domestic students and businesses. Investors have responded to this growth by accelerating delivery at a pace that outweighs absorption, particularly in the luxury segment. Greenville had rent growth of 4.2 percent in 2016, but growth will likely decelerate as additional supply is added to the market.
4 Portland, Maine
Portland, Maine’s economy benefits from its large port, which is undergoing a period of revival after the most recent recession. Last year, the port was approved for a $7.7 million federal grant that was said to create jobs, improve efficiency and increase competitiveness. Portland had a remarkable 5.4 percent increase in inventory in 2016, and unlike most markets, occupancy for affordable rentals is significantly lower than occupancy for luxury units, indicating the market can absorb new supply at the high end.
5 Buffalo, N.Y.
Despite the drop in occupancy, Buffalo, N.Y. may be experiencing an inflection point. Buffalo had the greatest rent growth among all major New York markets, with average rents increasing 4.1 percent to $984 as of April 2017. New projects such as Highland Park, a transit-oriented development including single family homes, apartments and townhouses, indicate investors are seeing more opportunities in the market. Primarily working-class submarkets such as Hamburg and Tonawanda had the greatest drop in occupancy, possibly driven by increased rents pushing one-bedroom renters to two-bedroom units to share expenses.
6 Des Moines, Iowa
Des Moines, Iowa is a major hub for the insurance industry, home to the headquarters of Principal Financial Group, Fidelity & Guaranty Life, Allied Insurance and EMC Insurance Group. The market experienced decent growth in 2016, with employment up 2.4 percent and net migration per capita of 1.2 percent. Falling occupancy is likely the result of an oversupply of high-end luxury rentals, where occupancy rates hover in the high 80 percent to low 90 percent range.
7 Oklahoma City
Although energy companies still have a large presence in Oklahoma City, the market’s economy has deviated from its concentration in the energy industry thanks to notable names including Dell, The Hertz Corporation, United Parcel Service (UPS) and The Boeing Company. Despite limited population and job growth in 2016, developers delivered a hefty 3.1 percent increase to inventory, and with already low occupancy figures, the market couldn’t absorb the surge in supply.
8 Wilmington, N.C.
Wilmington, N.C., is a port city and popular destination for tourists and new residents from other parts of the country due to its nightlife and proximity to the ocean. Strong employment growth of 3.0 percent and rent growth of 4.0 percent indicate the market had a good year in 2016 despite the drop in occupancy. With occupancy rates notably higher for upscale units, it appears the market can absorb additional supply in this segment.
9 Portland, Ore.
Nicknamed the “Silicon Forest” because of the high density of technology and software companies in the market, Portland, Ore., appeals to young professionals and businesses. With limited new supply and solid population and employment growth, average rents increased 2.9 percent to $1,318 as of April 2017. Occupancy rates are fairly stable across asset classes, and the drop in occupancy is likely due to affordability issues in the market, driving renters to more affordable submarkets outside the city core.
10 Austin, Texas
The low cost of doing business in Austin, Texas, appeals to start-ups and established companies alike, with many relocating or expanding in the “Silicon Hills” where there is a highly educated and growing workforce. The population continues to grow above the national rate, and in 2016 employment growth was 3.9 percent. The majority of new supply has been in the high-end luxury segment where occupancy rates were already fairly low, causing additional losses in occupancy.
This is Part 2 of a series of rankings identifying key market and submarket factors influencing the commercial real estate industry. If you missed Part 1, you can read it here.