Effective Rent Growth at 35-Month High

DALLAS, TX--(Marketwired - October 16, 2014) - The United States apartment market continued its stronger-than-expected 2014 in September, according to Axiometrics, the leader in apartment market research and analysis. National effective rent growth reached a 35-month high and occupancy remained above 95%.

September's effective rent growth of 4.3%, the strongest since the 4.4% of October 2011, was a 22-basis-point (bps) increase from August 2014's 4.1% and a 131-bps difference from September 2013's 3.0%.

"Strong absorption of new supply and continued steady job growth has resulted in a robust apartment market nationwide," said Stephanie McCleskey, Axiometrics Vice President of Research. "Rent growth is especially strong among properties in the mid-price rent range."

The San Francisco Bay Area and South Florida were the strongest regions for rent growth.

YTD Effective Rent Marginally Lower

Year-to-date (YTD) effective rent growth decreased by 2 bps to 5.5% in September, which, McCleskey said, "is not surprising given the trends of the recovery period. YTD rent growth has peaked in August or September during the past four years and then declined somewhat before the end of the year."

Meanwhile, YTD effective rent growth was stronger than any other post-recession year for the sixth straight month and is still stronger than the 5.2% recorded for the first nine months of 2010 and 2011.

Occupancy Remains Above 95%

National occupancy declined by 10 basis points from August's 95.2% to 95.1%, the second highest rate since Axiometrics started reporting on a monthly basis in April 2008.

"Historically, occupancy peaks in August or September," McCleskey said. "So the market appears to be following its seasonal pattern, but at a higher level."

Class B Continues Pushing Forward

The new supply being delivered consists mostly of Class A luxury apartments with rents that may be too expensive for the average apartment resident. This has created a differential in the demand and rent growth for each asset class. 

"While new supply can accommodate the new jobs added during the past four years, not all of those employed in these new jobs are able to afford that new supply," McCleskey said. "As a result, renters are flocking to more reasonably priced Class B apartments, which are experiencing the strongest rent growth among the three asset classes."

September's effective rent growth for Class B units measured 4.9%. In addition, there has been little new supply added at this price point. Overall, those who rent at this level are less likely to be able to afford a single-family home.

With less Class B supply available to meet demand, the occupancy rate tightens -- Class B occupancy was 95.4% in September -- and landlords raise rents.

"With occupancy rates so high, Class B apartments are functionally full," McCleskey said. "The reasons for strong rent growth now are different than they were at the beginning of this apartment cycle, which began in 2010. Even though supply and demand are more in balance now, landlords continue to have pricing power because few units are available at the price point that the average renter can afford." 

Northern California Dominates Again

Northern California continued to have the nation's hottest apartment market in September. Four out of the top five major metropolitan areas for effective rent growth in September were located in the northern part of the Golden State.

The South Florida area as a whole also gathered strength, with West Palm Beach, Miami and Fort Lauderdale ranked Nos. 7, 9 and 10, respectively. In all, seven of the top 10 metros among Axiometrics' top 50 apartment markets were in those two regions.

About Axiometrics

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.

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