CARROLLTON, TX - Demand for U.S. apartments stumbled in the first quarter of 2016. The occupied apartment count across the nation’s 100 largest metros climbed at a modest pace of 20,077 units in the first quarter, according to MPF Research, the rental market intelligence division of RealPage, Inc. That figure is less than half the typical demand for 40,000 to 50,000 units seen during the first quarter of the previous few years. Furthermore, quarterly demand in early 2016 fell well short of completions that totaled 65,258 units during the year’s initial three months.
According to RealPage chief economist Greg Willett, “Uncertainty about the nation’s near-term economic outlook appears to be constraining new household formation and demand for all forms of housing. Both rental demand and home sales are coming in at levels below the volumes typically seen when job production is fairly solid. There’s surprisingly little mobility, with many households hunkered down in their current living arrangements.”
Illustrating that limited mobility, the share of apartment renters opting to remain in place when their leases expire is at record levels. Analysis of individual lease transactions shows that 55.1 percent of the apartment leases reaching their expiration point in February were renewed.
Occupancy is Strong but Trending Downward
Demand under early 2016’s completion tally pushed national apartment occupancy down 20 basis points to 95.7 percent during the first quarter.
“Today’s occupancy rate is very tight, but the slight backtracking seen in the first quarter is significant because it runs counter to the normal pattern of seasonality in performance statistics,” Willett said. “Occupancy tends to lose a little momentum at the end of every year and then hold steady or climb a bit at the start of the next year.”
Mild downturns in occupancy occurred during the first quarter across almost all individual metros and across all property asset classes and price points. Thus, the loss of occupancy seen at the beginning of the year wasn’t simply due to the introduction of new properties still in the initial leasing stages.
Rent Growth Remains Robust
Disappointing demand and cooling occupancy in early 2016 didn’t stall the upward trajectory of rents. Pricing for new-resident leases climbed another 0.9 percent during the first quarter, with rent growth proving a little stronger than the rent increases posted in the initial quarters of each of the previous three years.
New-resident rents are up an even 5 percent on an annual basis, with the typical apartment rent across the country’s 100 largest metros reaching $1,260 per month.
Among individual large metros, Portland is again the country’s rent growth leader, with pricing up 11.8 percent annually. The West region continues to account for many of the markets where rent growth is particularly sharp, though rental rates are climbing quite a bit in select other locales like Tampa, Atlanta, Fort Worth, West Palm Beach and Nashville.
Rent growth at the levels seen currently could prove difficult to sustain, given that demand is no longer where it was a bit earlier and that occupancy appears to have already moved past its peak for the cycle. “Our expectation is that rent growth will register near 4 percent during the near term,” according to Willett. “That outlook is a healthy performance relative to the long-term norm, but at the same time well under the increases posted of late.”