DALLAS, TX--(Marketwired - January 20, 2015) - Apartment fundamentals continued strong in December, reaching a 41-month high in annual effective rent growth and solidifying 2014 as the strongest year for apartments since the end of the Great Recession.
According to research from Axiometrics, the leader in apartment market research and analysis, the national annual effective rent growth in December 2014 reached 4.9%, the strongest monthly rate of 2014 (and even 2013 and 2012). The last time rent growth was this high was in August 2011 at 5.0%. The rate has increased for 10 straight months and was higher than the previous month's level for 11 of 12 months during 2014.
"We called 2014 the Year of the Apartment Market, and the end of the year confirmed that," said Stephanie McCleskey, Axiometrics Vice President of Research. "With job growth improving throughout most of the nation, demand for apartments still exceeds new supply, even though more units were delivered this year than any year since before the recession."
The December 2014 rate was 219 basis points (bps) higher than the 2.7% of December 2013. It was also a 21-bps increase from November's 4.7%.
"The increase from November to December is interesting because the end of the year is usually when rents begin to decelerate because of seasonality," McCleskey said. "We just didn't see that happen this year."
YTD Rent Growth Strongest of Recovery
"The year past was a pleasant surprise for landlords and investors -- rent growth exceeded expectations almost the entire year," McCleskey said. "And to cap it all off, we can celebrate 2014 as the national apartment market's strongest year since the Great Recession ended, as measured by year-to-date (YTD) effective rent growth."
YTD growth ended 2014 at 5.0%, a heady 42 bps higher than the final 2010 YTD rate of 4.6%. YTD rent growth in 2014 has led the other recovery years since April and was never really challenged the rest of the year. Though the 2014 figure decreased somewhat from the August-September peak of 5.5%, the market's fourth-quarter strength kept 2014 safely at the top of the post-recession year's trend lines.
"It will be interesting to see if the same trend continues in 2015," McCleskey said. "Axiometrics' forecast is that rent growth will begin to slow in 2015, as current levels are unsustainable in the long term and the amount of new supply begins to take a toll."
Occupancy Remains Robust
Occupancy was 94.6% in December, compared with 94.8% in November and 94.2% in December 2013. Although occupancy declined slightly from the 95% seen in mid-2014, it did not drop below 94% during 2014, and has not gone below that mark since March 2012. Also, the December 2014 occupancy rate was the highest reported in any December since Axiometrics began tracking monthly in 2008.
"The ability of existing units to maintain occupancy rates at this level, even with the amount of new supply, definitely demonstrates how much demand there is for apartments," McCleskey said. "Developers and landlords can thank expanding job growth for this trend."
Trading Places by the Bay
That the San Francisco Bay Area had three of the top four annual effective rent growth levels among Axiometrics' top 50 markets (by number of units) in December is no surprise. It's been that way for months.
The news is that San Francisco and San Jose changed places, trading the Nos. 2 and 4 spots. While Oakland was still No. 1 with a December rent-growth rate of 13.9%, one now only has to cross the Bay Bridge to reach the No. 2 market -- San Francisco, at 11.6%. San Jose (10.4%) fell behind Denver (11.2%).
Northern California also held the No. 5 spot with Sacramento. South Florida hosted three of the eight markets ranking from Nos. 6-13.
Charleston (No. 12) and Fort Worth (No. 15) re-entered the Top 17 chart, while Hartford and Orlando fell off. Orlando dropped to No. 18, just 3 bps behind Nashville, while Hartford ended up at No. 21, but remained the only Northeast market with annual effective rent growth above the national average.
With San Diego and Houston sitting at Nos. 19 and 20, respectively, the entire Top 20 resided in the West and South.
Odessa had the highest effective rent growth of all markets, at 18.1%. "However," McCleskey said, "declining oil prices will affect smaller, more oil-and-gas-dependent markets such as Odessa more negatively than they will larger, more diversified metros such as Houston."
| Annual Effective Rent Growth | Occupancy Rate | Revenue Growth | |||||
| Rank | MSA | 13-Dec | 14-Dec | 13-Dec | 14-Dec | 13-Dec | 14-Dec |
| 1 | Oakland, CA | 6.8% | 13.9% | 95.9% | 96.3% | 6.6% | 14.3% |
| 2 | San Francisco, CA | 7.0% | 11.6% | 95.5% | 96.7% | 7.5% | 12.8% |
| 3 | Denver, CO | 7.0% | 11.2% | 95.1% | 95.4% | 7.2% | 11.6% |
| 4 | San Jose, CA | 8.7% | 10.4% | 95.5% | 95.7% | 8.6% | 10.7% |
| 5 | Sacramento, CA | 4.5% | 9.3% | 95.2% | 95.6% | 5.2% | 9.8% |
| 6 | West Palm Beach, FL | 4.9% | 8.7% | 94.9% | 95.6% | 5.5% | 9.3% |
| 7 | Portland, OR | 8.4% | 7.5% | 93.3% | 93.8% | 6.7% | 8.0% |
| 8 | Atlanta, GA | 5.6% | 7.4% | 95.5% | 95.6% | 9.1% | 7.6% |
| 9 | Fort Lauderdale, FL | 2.9% | 6.9% | 93.2% | 94.1% | 3.6% | 7.6% |
| 10 | Seattle, WA | 5.2% | 6.7% | 92.0% | 93.4% | 3.1% | 7.5% |
| 11 | Phoenix, AZ | 3.3% | 6.7% | 93.7% | 94.3% | 4.6% | 7.3% |
| 12 | Charleston, SC | 3.2% | 6.7% | 94.7% | 95.1% | 3.2% | 7.3% |
| 13 | Miami, FL | 6.1% | 6.6% | 94.9% | 95.2% | 4.8% | 7.0% |
| 14 | Los Angeles, CA | 3.4% | 6.4% | 94.0% | 94.7% | 3.0% | 7.0% |
| 15 | Fort Worth, TX | 3.2% | 6.3% | 95.3% | 95.8% | 3.2% | 6.9% |
| 16 | Las Vegas, NV | 2.2% | 6.1% | 95.9% | 95.7% | 6.0% | 6.5% |
| 17 | Nashville, TN | 4.1% | 5.8% | 95.8% | 95.5% | 4.3% | 5.5% |
| National | 2.8% | 4.9% | 94.2% | 94.6% | 2.8% | 5.4% | |
| Selected Other Markets | |||||||
| 1 | Odessa, TX | 9.2% | 18.1% | 98.1% | 97.5% | 9.3% | 17.4% |
| 4 | Vallejo, CA | 5.2% | 12.6% | 95.9% | 96.4% | 6.2% | 13.1% |
| 6 | Naples, FL | 11.8% | 11.2% | 97.9% | 97.3% | 12.7% | 10.6% |
| 9 | Santa Rosa, CA | 10.8% | 10.6% | 96.9% | 96.6% | 10.5% | 10.3% |
| 11 | North Port, FL | 7.7% | 9.7% | 96.4% | 96.8% | 8.0% | 10.2% |
| *Rank is based on annual effective rent growth in December 2014 for Axiometrics Top 50 Markets. Selected other markets are based on Axiometrics Top 121 Markets. Axio tracks properties in more than 450 MSAs throughout the country. | |||||||
| Source: Axiometrics Inc. | |||||||
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. To learn more visit www.axiometrics.com, follow @Axiometrics or on LinkedIn, or call 214-953-2242.
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ross@mpdventures.com
