Apartment Market Remains Strong in First Half of 2014

According to a recent report from apartment research company Axiometrics, the U.S. apartment market has remained strong through the first half of 2014, thanks in part to low concession rates, high annualized rent growth and occupancy rates.
effective rent growth

Source: Axiometrics

Dallas—According to a recent report from apartment research company Axiometrics, the U.S. apartment market has remained strong through the first half of 2014, thanks in part to low concession rates, high annualized rent growth and occupancy rates. The Oakland, Calif., major metropolitan market is hot with the Denver, Miami, Atlanta and Seattle markets also posting strong numbers.

“In April, 2014 year-to-date (YTD) effective rent growth just edged 2011 and 2012 to position itself as the strongest year of the recovery,” says Jay Denton, Axiometrics vice president of research. “The apartment market’s performance in the past two months has widened the gap.”

Nationally, concession rates in June reached its lowest in five years at 0.78 percent, while annualized effective rent growth was 3.6 percent and the highest since December of 2012. U.S. occupancy figures also remained strong, exceeding 95 percent for the second straight month.

YTD effective rent growth rate in June was 4.5 percent, up from 3.6 percent in May. The YTD figures for May 2011 and 2012 was 3.3 percent, and June for the same years was 3.9 percent and 4.1 percent, respectively.

“It would be accurate to say that in 2014 the apartment market has generated its strongest post-recession first half performance,” Denton says.

With effective rent growth on the upswing, revenues are seeing a surge after dropping from 4.2 percent in January 2013 to 2.8 percent in December of that year.  Axiometrics’ data hints that revenue growth will continue to climb, as rates have increased for four straight months, rising 10 basis points (bps) in June from a rate of 3.8 percent in May.

“Higher rents translate to revenue growth, which is the combined change in effective rent and occupancy growth,” he says.

Concession rates, which have ranged from 1.2 to 2.1 percent from July 2012 to March 2014, are sliding as well. The 0.78 percent rate for June was slightly lower than May’s rate of 0.82 percent and about 0.5 percent lower than the June 2013 rate.

“Of course effective rent growth, concessions and occupancy go hand-in-hand,” Denton says. “Lower concession values mean higher effective rent, and higher occupancy allows landlords to push rents even farther. Plus, more and more properties going on Lease Rent Options and the general strength of the apartment market have made concession disappear.”

While occupancy rates have declined somewhat—down 4 bps to 95 percent from 95.1 percent in May—the flood of new units being delivered is likely to contribute to that decline. According to Axiometrics, 56,247 units were delivered into the U.S. market in just the second quarter alone, marking the highest number of units delivered in a quarter in more than two years. So far, 2014 has seen 102,692 units delivered and even more than that number of units are expected before the year’s end.

“The apartment market produced an impressive performance in the first half of 2014,” Denton says. “With about 150,000 or more units scheduled for delivery in the second half, occupancy and the rate of effective rent growth will be at greater risk of declining. Then again, the strength of the second quarter, even with so many units being delivered, was a bit of a surprise to many in the apartment industry.”

Axio top MSA

*Rank is based on annual effective rent growth in June 2014. Only markets in the top 121 MSAs with more than 4,000 units were used for the ranking. Axiometrics tracks properties in more than 400 MSAs around the country.
Source: Axiometrics Inc.

Axiometrics’ ranking of the top 50 metropolitan markets was topped by Oakland, Calif. MSA, which finished June at a 9.66 percent annual effective rent growth rate, a 96.52 occupancy rate and revenue growth rate of 9.4 percent.

Other MSAs topping the list included San Jose, Calif. at No. 2, which increased its rent growth from 6.64 percent in June 2013 to 9.04 percent in June 2014 and posted gains in revenue growth from 6.52 percent to 9.16 percent in the same time frame.

Chicago, New York and the Washington, D.C., markets all ranked near the bottom nationally; with the DC area falling into the red in annual effective rent growth at -0.02 percent in June 2014—down from 0.02 percent in June of the previous year.