Apartment Market Sees Stronger Rent Growth, Tightened Occupancy

Michael Tucker mtucker@mba.org

January 11, 2019


U.S. apartment rent growth accelerated to a 3.3 percent annual pace in the fourth quarter, reported RealPage, Richardson, Texas.

The sector's annual rent growth momentum proved "substantial" in 2018's second half, pushing full-year performance ahead of 2017's 2.5 percent growth, RealPage Chief Economist Greg Willett noted.

"In contrast to the stumble seen in for-sale housing demand in recent months, the country is gaining lots of additional renters," Willett said. "Job production is fueling household formation among younger adults who tend to rent, and the loss of existing renters [to house purchases] is running at levels below the historical norm."

Willett said apartment owners and operators gained pricing power during the quarter due to "robust" demand that drove occupancy to 95.4 percent, up from 95 percent in late 2017. Demand topped annual completions that totaled 287,007 units.

The multifamily sector just wrapped up its eighth year of healthy performance, the Yardi Matrix Multifamily Monthly report said. Rents have increased 31 percent nationally since January 2011 and rent growth topped 3 percent in six of the last eight years.

"That's impressive performance, but it also breeds worry that the cycle has extended almost as far as it can," Yardi Matrix said. "Real estate rarely has performed so well for so long."

But multifamily fundamentals could remain vigorous in 2019 and beyond, Yardi Matrix said, citing strong household formation, robust job growth and social factors such as student loan debt that limits first-time homebuyers. "Multifamily could be taking a trajectory much like hotels, which have had nine consecutive years of above-trend revenue growth," the report said.

Apartment sector building remains "aggressive" with 319,123 units slated to complete in 2019, Willett said. Near-term new supply leaders include Dallas, Los Angeles, Washington, D.C., Seattle and Atlanta.

"With so much high-end new product finishing in the near term, there will be a scramble to attract resident prospects in the luxury apartment niche," Willett said. "At the same time, vacant units available to lease can be very difficult to find in properties in the middle to lower end of the pricing spectrum. Few renters are moving around within the nation's more moderately priced apartment stock, in part just because there are so few housing options available for all but the most affluent renters."

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