Apartment Market Earns 4.0 for 3Q

DALLAS, TX--(Marketwired - September 30, 2014) - The nation's apartment market continued to gain strength in the third quarter of 2014, according to early release figures from Axiometrics, the leading apartment market research company. Annualized rent growth reached 4.0% for the first time in almost two years, while quarterly effective rent growth increased significantly over the third quarter of 2013.

Occupancy also increased, to 95.1%, breaking the record of 95.0% set last quarter, which had been the highest since the first quarter of 2001.

Landlords Continue Pushing Rents

Effective rent growth increased by 1.6% over the second quarter of 2014 on a quarter-by-quarter basis (reflecting the growth from July 1 to now), an improvement on the 1.2% quarterly growth of the July-September period last year. Each quarter this year has seen improved rent growth from the same quarter last year.

"That 1.6% growth is great for the summer season," Axiometrics Senior Vice President Jay Denton said. "The quarterly numbers this year show a stronger apartment market than we anticipated at the start of the year."

While effective rent growth for the third quarter was lower than the 2.7% rate measured in Q2, the decrease between the second (2.7%) and third quarters (1.6%) is typical for the seasons, Denton said. Axiometrics' historical data shows that the second quarter is usually the best of the year and that rent growth moderates after June.

The 4.0% annualized effective rent growth is the strongest since the 4.2% of the second quarter of 2012 and is 70 basis points (bps) higher than the 3.3% in 2014's second quarter. The 4.0% mark for the quarter matches what was seen in the monthly trends, when annualized growth reached a 27-month high of 4.1%.

"Axiometrics has been calling this the year of the apartment, and the third quarter rent growth further proves it," Denton said. "The 4.0% growth is big. Nobody was really predicting that the market would reaccelerate this year."

Apartments Are Full

Rent is still increasing because the market is basically filled to capacity -- Axiometrics considers a property or market to be full at 95% occupancy, and national occupancy has been at or above that point for the past two quarters. So, new supply is needed to meet the demand. Currently, Denton said, demand exceeds supply.

"New supply is hitting when the apartment market is already full," Denton said. "We need units for people to simply have a place to live. Because of that, landlords are not under a lot of pressure to lower rents."

Demand is strong because more people want to rent. Job growth has been high for most of 2014, millennials are delaying marriage and children, and a lot of people just don't want to move out of apartments to purchase homes for reasons including mobility, proximity to work and play, and more restrictive mortgage requirements.

Effective Rent Growth: Urban Versus Suburban

One major change seen in the past year is the decreasing rent growth in urban cores and increasing rent growth in suburban submarkets.

"A higher concentration of deliveries is taking place in downtown/uptown/center-city areas, so existing properties are moderating rent to stay competitive and retain residents," Denton said. "While more total supply is being delivered to suburban markets, those units are more spread out, and the competition is not quite as keen."

In Boston, for example, annualized effective rent growth was 6.0% in the West/Northwest Suburban submarket in the third quarter, but -1.1% in the Central City/Back Bay/Beacon Hill submarket. In the Denver area, the Aurora-Central-Southwest submarket experienced 13.5% annualized growth this quarter, compared with 3.3% in the Denver-Downtown submarket.

More supply is coming to both the urban core and the suburbs in the fourth quarter of 2014 and in 2015, but most metropolitan areas will be able to handle the deliveries.

The 25 top Metropolitan Statistical Areas (MSA) or Metropolitan Districts -- among Axiometrics' top 50 markets with the most apartments -- by quarterly effective rent growth for the second quarter of 2014 were:

The top 25 markets on an annualized effective rent growth basis, among the top 50 markets:

The top 25 metro areas by occupancy on a quarterly basis, among the top 50, in the third quarter of 2014 were:

Axiometrics improves property and portfolio performance for apartment investments. Confident investment decisions begin with reliable, timely information. No one has more accurate, detailed, and up-to-date research on the apartment and student housing markets. Learn more at www.axiometrics.com or by calling 214-953-2242.