By Dees Stribling, Contributing Editor
Dallas—National effective rental rates were down 1.05 percent during the fourth quarter of 2011, compared with the previous quarter, according to the apartment market research specialist Axiometrics Inc. But the Dallas-based company says that the change doesn’t point to a weakening of the apartment industry, which has famously benefitted from the drubbing that the for-sale housing market has taken in the last five years.
The 4Q11 decline in effective rents is larger than the 0.59 percent drop over the same period of 2010, but because effective rents grew so much during the previous eight months of 2011—and because units at the upper end of the market are nearing capacity—pricing power for apartment owners is still strong, Axiometrics says. Thus rents should continue on their upward trajectory in 2012.
Nationally, effective rents increased by 4.1 percent during all of 2011, the company notes, which was down from an increase of 4.4 percent in 2010. The difference between the two years occurred mostly because of the drop on the last three months of last year. Broken out by property class, Class A properties ended the fourth quarter of 2011 with annual effective rent growth of 5.3 percent; Class B properties with an increase of 4.2 percent; and Class C with an increase of 3.8 percent.
Since their trough in the third quarter of 2008, rents for Class A, B, and C properties have all increased so much that they are now higher than their prior peak. From December 2009 to December 2011, the level of effective rent increased from $929 to $1,011, or almost a 9 percent rise over two years for all classes of properties.
Axiometrics also reported that the national occupancy rate finished 2011 at 93.5 percent, which was up 40 basis points from 2010. As with rental rates, each property class is experiencing the rise in occupancy rates differently.
Specifically, Class-A properties have averaged 95.3 percent occupancy, which is the industry benchmark for full capacity, since the second quarter of 2010. The tight occupancy in Class-A properties has filtered down to Class-B properties, which are now 94.3 percent occupied. As a result, Axiometrics expects Class-C properties to significantly improve their occupancy rate in 2012, from an average of 91.4 percent in the fourth quarter of 2011 to more than 93 percent this year. At such a rate, Class-C units would be near their peak occupancy, last seen in 2006.