Apartment Market Sees Accelerating Rent Growth, Tightening Occupancy

Michael Tucker mtucker@mba.org

September 28, 2018


U.S. apartment rent growth accelerated to a 2.9 percent annual pace in the third quarter, reported RealPage, Richardson, Texas.

The bump up from 2.5 percent annual rent growth in the second quarter reversed the pattern of slowing apartment price increases recorded since late 2015, said RealPage chief economist Greg Willett.

"Momentum in the apartment market's performance during the third quarter slightly surpassed expectations," Willett said. "Still, there doesn't seem to be a pronounced shift in the big-picture story. We are about to move into the period of seasonally slow apartment leasing that comes with the cold weather months. Demand will trail completions just ahead, making it tough for the rent growth pace to gain additional traction."

Willett noted apartment owners "gained a little more pricing power" during the quarter as apartment occupancy increased from 95.4 percent to 95.8 percent.

"Earlier this year, the housing market was a story of diverging paths, with rents steadily cooling and home values picking up speed," said Aaron Terrazas, Senior Economist with Zillow, Seattle. "Normally rents and home values are tied together, but strong apartment construction and a surge of young homebuyers contributed to this historical anomaly."

But Terrazas said a more typical pattern is re-emerging as summer turns to fall.

Demand for 106,716 apartments in the third quarter well surpassed completions that totaled 83,170 units, RealPage reported. Year-to-date, the country's occupied apartment count has increased by 295,750 units compared to new project deliveries totaling 232,911 units.

U.S. apartment sector construction remains aggressive, Willett said. Market-rate apartment completions have averaged between 300,000 and 325,000 units annually since late 2016 and ongoing construction points to that volume of deliveries continuing at least through year-end 2019. Near-term new supply leaders include Dallas, Los Angeles, New York, Washington, D.C. and Seattle.

"With so much high-end new product finishing in the near term, the leasing environment will be competitive in that luxury apartment niche," Willett said. "At the same time, product shortages remain for moderately-priced rental housing. It's tough to find available apartments at the middle to lower-end price points across most neighborhoods."

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