DALLAS, TX - Axiometrics Inc., a provider of data and advisory services on the apartment market, reports that national effective rents increased by 0.89% from February to March, which is the highest sequential growth rate since the firm began surveying its property database monthly in April 2008. Year-to-date, effective rents have increased 1.81%, as compared to 1.84% over the same period in 2011. The national occupancy rate also increased on a sequential basis for the second consecutive month, rising from 93.61% in February to 93.94% in March. This was the largest month-to-month gain in occupancy since August 2010.
Axiometrics also reports that while development has not yet returned to previous peaks, it is picking up across the country, primarily in markets where effective rents have increased by 10% to more than 20% since December 2009. Currently, the company is tracking approximately 500 properties under construction, and 2,700 in the planning stage, across 188 U.S. markets.
“In 167 submarkets, effective rents have increased more than 15% since December 2009. Of those submarkets, 51 have seen effective rents grow more than 20%,” said Ron Johnsey, president of Axiometrics. “Those high growth submarkets are the places where we see the most new apartment construction. Many of these are urban core submarkets with a high concentration of Class A assets, though there are also some lower-tier submarkets where we’ve already seen shovels in the ground. As we report further on this trend, it will be interesting to note where apartment development is making its strongest comeback.”
Effective Rents
Since November 2011, Axiometrics reports that national annual effective rent growth has remained in a relatively consistent band between 3.96% and 4.1%. However, the firm anticipates that the rate will trend closer to 5.35% in the second half of the year.
Class C properties reported accelerated rent growth in March. Specifically, Class C rents increased 1.1% from February to March, and increased their annual growth rate to 4.0%, thus surpassing Class B annual growth (3.9%) for the first time since the apartment market recovery began.
Class A and B annual rent growth remains healthy, but Axiometrics notes that there has been some moderation since the summer of 2011. Class A annual rent growth, while still positive, has steadily slowed in seven of the past nine months, from 5.9% in June 2011 to 4.6% in March 2012. Class B annual rent growth has averaged between 3.8% and 3.9% for five consecutive months.
Occupancy Rate
In March, Axiometrics notes that recent strong occupancy growth by Class C properties continued. While they had a lot more ground to recover overall, Class C properties absorbed almost 4.5 times as many units between February and March as stabilized Class A properties. Even with this strong growth Class C occupancy, at 91.6%, remains well below the occupancy rates of Class A (95.2%) and Class B (94.5%) properties.
Market Highlights and Construction Pipeline
Several markets are poised once again for effective rent growth greater than 6.0% this year. In fact, in just three months San Jose has already increased rents 5.0%, and along with San Francisco is poised to remain one of the highest growth markets this year. Some markets that didn’t perform well in March are expected to gain momentum later in the year, and should see rent growth in the 3.0%-4.0% range.
Note: 2012 Rent Growth represents 4Q11 to 4Q12 growth. 2012 Occupancy Rate represents the average for the year.
Axiometrics reports that construction activity is currently taking place in the top-tier submarkets, generally classed as A or B+ and which have a high level of effective rent as compared to the MSA average. As of March, the firm was tracking 38 submarkets with three or more properties under construction.