Apartment Market Strong as First Half of 2014 Ends

DALLAS, TX--(Marketwired - July 21, 2014) - The national apartment market maintained its strong 2014 performance in June, as year-to-date effective rent growth continued to exceed that of any other post-Great Recession year, according to Axiometrics, the leading provider of apartment market research and data.

June's concession rate of 0.78% was the lowest in at least five years, annualized effective rent growth of 3.6% was the highest since December 2012 and occupancy remained above 95% for the second straight month.

"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," said Jay Denton, Axiometrics Vice President of Research. "The apartment market's performance in the past two months has widened the gap."

June's 2014 YTD effective rent growth rate of 4.5% represented a nice increase from the 3.6% recorded in May 2014. Whereas the YTD rate in both May 2012 and 2011 was 3.3%, the June figures those years were 3.9% and 4.1%, respectively.

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

This year's YTD effective rent growth will have to reach 4.8% or higher in July to maintain the No. 1 position in the second half of the year.

Higher Rents, More Revenue

Annualized national effective rent growth increased 10 bps in June to 3.6%, compared to 3.5% in May. June marked the fourth straight month that effective rent growth increased, and the fourth straight month in which the rate was 3.1% or above. The rate was the highest since January 2013, when it was 1/100^th of a percentage point ahead of where it was in June.

"Higher rents translate to revenue growth, which is the combined change in effective rent and occupancy growth," Denton said.

The accompanying chart depicts that annualized revenue growth, at 3.9% in June, recovered from a late 2013 -- early 2014 dip that mimicked a decrease in occupancy but was not as deep as a drop in effective rent growth. Revenue growth dropped from 4.2% in January 2013 to 2.8% last December. The rate has increased for four straight months and was up 10 bps in June from 3.8% in May.

The June concession rate, in reaching its five-year low, was below 1% for the second straight month, slightly lower than the 0.82% recorded in May. The rate is equivalent to about three days of free rent on a 12-month lease. A concession rate of 8.33% would equal one month of free rent on a 12-month lease. Monetarily, June's rate of 0.78% snipped about $9 off the national average asking rent of $1,115.11.

Concessions ranged from 1.2% to 2.1% from July 2012 to March 2014, before sliding below 1% in May. June was the sixth straight month during which the concession rate decreased, and the fourth straight month it hit a five-year low. The concession rate was 1.3% in June 2013.

"Of course, effective rent growth, concessions and occupancy go hand in hand in hand," Denton said. "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 concessions disappear." 

Occupancy Down, Definitely Not Out

Occupancy declined slightly, by 4(bps), in June to 95.0% from a record 95.1% in May. The June 2013 occupancy rate was 94.8%, and occupancy has been above 94.0% since March 2012.

Meanwhile, 56,247 units were delivered in the second quarter of 2014 alone, the most of any quarter in the past two-and-a-half years. The total number of units delivered so far this year is 102,692. The fact that occupancy has remained high in the face of increased supply coming demonstrates a still-strong apartment market.

"The apartment market produced an impressive performance in the first half of 2014," Denton said. "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."

Class A Continues Climb; Class B Hits Milestone

Class B properties continue to provide the strongest rent growth among the asset classes, but Class A maintained its ascent from a significant decline between June 2013 and February 2014.

Annualized effective rent growth in Class A -- the top 20% by rent level -- reached 3.6% in June, up from 3.2% in May. The Class A rate is 10 bps higher than the 3.5% from June 2013, but is 140 bps above the depth of the dip, 2.1% in November 2013.

Class B effective rent growth, meanwhile, reached the 4.0% mark in June, an increase from the 3.9% recorded in May and the 3.7% of June 2013. This asset class has been the strongest for three straight months.

The one asset class in decline is Class C, which decreased to 3.4% effective rent growth in June from 3.6% in May, a high of 3.8% in April, and 3.6% in June 2013.
"Higher demand for Class A and B properties, as well as the increase in availability of new Class A units, has left Class C properties behind," Denton said.

Oakland Tops Major Metro Chart

Oakland had the highest effective rent growth and was among the strongest occupied of any major metropolitan market in the United States. Denver, Miami, Atlanta and Seattle remain very strong, as they have been for several months, while Nashville gained a lot of traction.

Washington, D.C., and New York continued to rank among the bottom in both annual effective rent growth and revenue growth, although Washington's revenue growth continues to rise. The capital's effective rent growth, however, slid slightly into negative territory in June after regaining positive ground in May. Chicago joins the eastern seaboard metropolises near the bottom, with declines of more than 1 full percentage point in effective rent and revenue growth.

Axiometrics revised its ranking system this month. The 50 metropolitan markets with the most units are ranked among themselves. Then, the five markets with the strongest effective rent growth among the rest of the top 121 markets are listed.

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