CARROLLTON, TX - Demand for apartments across the U.S. is continuing to rise, and the rapid leasing pace is pushing up occupancy and rent growth, according to MPF Research, the rental market intelligence division of RealPage, Inc.
“At the same time, relatively few of the more-established renters are leaving apartments to make home purchases for the first time.”
Running counter to the historically typical pattern of seasonally slow leasing during the winter months, apartment demand for a hefty total of 64,297 units registered across the country’s 100 largest metropolitan areas in the first quarter of 2015. That product absorption volume topped the demand tally for the initial three months of 2014 by 55 percent. The annual apartment demand count climbed to 276,513 units as of the first quarter, up 44 percent from early 2014’s annual product absorption pace.
“Accelerating job creation is allowing more young adults to form new households, and almost all of the new households are opting to rent,” said MPF Research vice president Greg Willett. “At the same time, relatively few of the more-established renters are leaving apartments to make home purchases for the first time.”
While cities of all sizes throughout the country are realizing strong apartment demand relative to local historical norms, just a handful of spots are driving national absorption to such high levels, according to the MPF Research analysis. The top 15 metros for apartment leasing accounted for 56 percent of the nation’s total demand that registered during the past year.
Most of the country’s apartment demand is focused in Sun Belt and West Coast metros that are adding particularly large numbers of both jobs and households. Texas plays an especially outsized role in the total demand results. Dallas-Fort Worth, Houston, Austin and San Antonio combined to account for 20 percent of total apartment demand nationally during the past year. That share of demand doubles the 10 percent share of U.S. existing apartment inventory found in the big Texas markets.
Washington, DC, Chicago and Boston are among the few places in the Northeast, Mid-Atlantic and Midwest regions making sizable contributions to U.S. apartment demand.
Demand surpassing completions pushed the country’s apartment occupancy rate to 95.4 percent in the first quarter. That figure is up 10 basis points from the fourth-quarter 2014 reading and up 40 basis points annually.
“Product availability is very limited in the middle-priced and most-affordable properties across the entire country,” Willett said. “The bulk of the available stock is found in brand new, expensive projects that are moving through the initial lease-up process.”
Effective rents for new leases jumped 0.7 percent during the first quarter, and the annual price increase came in at 4.6 percent. Annual rent growth as of the first quarter matched the rate of increase seen in late 2014. The pace of annual price acceleration is up from 3.2 percent a year ago.
Renters in Denver-Boulder are experiencing the country’s steepest price growth. During the past year, Denver-Boulder rents for new leases jumped 10.5 percent, just ahead of the 10.2 percent rent growth recorded in both Oakland and San Francisco. While Denver-Boulder has ranked among the nation’s stronger rent growth performers throughout recent years, early 2015 is the first time that the market has been in the very top spot.
Apartment rents climbed 9.3 percent during the year-ending in the first quarter in San Jose, and increases of 7.2 to 7.9 percent occurred in Portland, Atlanta and West Palm Beach. Growth of 6.4 to 6.7 percent was seen in Sacramento, Fort Worth and Los Angeles.
Markets just missing top ten positions for annual rent growth include Nashville, Las Vegas, San Diego, Fort Lauderdale and Seattle-Tacoma, all with increases of 5.3 to 5.7 percent.
There are a couple of particularly interesting stories seen within the markets in the #11 to #15 positions for annual rent growth. Las Vegas now ranks among the nation’s better performers for rent growth for the first time in this market cycle. Occupancy in this late-recovering economy finally has tightened enough to create strong pricing power for apartment owners and operators. Seattle-Tacoma, while still registering rent growth above the national norm, is not a top ten performer for the first time in five years. A surge in apartment deliveries is cooling off apartment rent increases among the best properties in Seattle’s urban core.
MPF Research is forecasting that U.S. apartment occupancy will ease mildly to 95 percent over the next year and that the annual rent growth pace will cool to 3.6 to 3.9 percent. While demand should remain very strong, absorption likely won’t quite keep pace with completions. Just over 400,000 apartments currently are under construction in the nation’s top 100 metros, with 280,000 to 290,000 of those units scheduled to be completed during the next 12 months.
“Even with occupancy and rent growth anticipated at levels somewhat lower than seen currently, this outlook is still very healthy, well above the historical norm,” Willett said. “We’re not on a path toward overbuilding in the big picture, though select neighborhoods in a handful of metros could register more meaningful softening in overall performance due to the volume of new supply.”