Apartment Completions in Top 100 Metros at 14-Year High

Apartment completions in the nation’s top 100 metros reached the highest levels in 14 years in the third quarter at 66,813 units, and pushed the annual completion total so far to 226,615 units—also a 14-year high—according to information released by MPF Research.

Carrollton, Texas—Apartment completions in the nation’s top 100 metros reached the highest levels in 14 years in the third quarter at 66,813 units, and pushed the annual completion total so far to 226,615 units—also a 14-year high—according to information released by MPF Research.

“The wave of new supply coming for the past year or two now is beginning to crest,” says Greg Willett, MPF vice president. “The timing looks right for this cycle, as the job production needed to stimulate household formation also has gained some momentum this year.”

The volume of completions did not outpace demand for new supply, as third quarter demand finished well-above completion levels at 78,971. Annual demand is hovering just below 255,000 units, and with 387,397 units currently under construction, Q4 completions are anticipated to deliver about 90,000 units, which will put the total annual completions somewhere near 258,000 units.

There’s a strong appetite for rental units,” Willett says. “While the economy isn’t performing at ideal levels, there’s enough momentum to stimulate significant growth of renter households. The overall performance numbers in the apartment sector are also being helped by the limited number of first-time homebuyers. Loss of apartment residents to purchase remains at a trickle.”

Both occupancy and effective rents continue to climb as well—a trend that will likely continue. Occupancy was up 10 bps in the third quarter, and 30 annually, to 95.7 percent, marking an improvement of 0.1 percent from Q2 2014 and 0.2 percent from Q3 2013. Effective rents for new leases across the top 100 metros climbed 1.3 percent during the third quarter, with annual rent growth pace moving up 3.7 percent. Annual rent change in the top 100 markets is up 7 percent with Class B assets showing the highest increase around 4 to 5 percent. Both Class A and Class C assets were up about 3 percent and rent growth in new products was up about 1 percent.

In individual metro areas, Las Vegas entered the top-10 list for rent growth, tying with Houston at 4.6 percent. The top metro for rent growth was Oakland at 9.1 percent, with Denver-Boulder and San Jose I ranked in a close second at 9.0 percent.

“Las Vegas is a newcomer to the list of rent growth leaders,” Willett says. “The performance seen over the last couple of quarters is a dramatic shift from earlier results, since Las Vegas previously was one of the country’s laggards for rent growth. Job production and apartment occupancy now are improving rapidly in Las Vegas, and pricing power is returning in the apartment sector. In the big picture, however, this one still has some work to do. It’s the only big market in the nation where today’s rents still trail pre-recession prices.”