Better-Than-Expected Local Apartment Market Performers

With the nation’s economy now in recession, the apartment market has missed much of its usual springtime surge in leasing activity. Occupancy is trending downward from the very high levels seen previously. If rents are growing at all, it’s at a slowed pace, and actual price cuts are occurring in most locations.

Still, there are comparative bright spots, most of them markets that virtually nobody had at the top of the list of expected performance leaders coming into 2020. Here are five markets where results continue to look relatively solid, or at least are better than many would have anticipated in the event of a big-time national disruption.

In preparing this list, RealPage analysts looked at measures such as the magnitude of job loss, occupancy, change in effective asking rents and – more meaningfully – prices achieved for the leases actually executed of late, resident retention when initial leases expire and the ability to collect rents from the existing resident base.

Virginia Beach Moves to the Top

Among the country’s 50 largest markets, there’s only one that registers top-tier results for every performance measure examined – Virginia Beach.

Occupancy is in great shape at 96.4%, with that figure matching the year-earlier reading. New York is the only other market where occupancy hasn’t declined, and the New York result likely is exaggerated a bit as some who have left the market haven’t yet been able to move their possessions and technically end their leases. Continuing tight occupancy has helped Virginia Beach outperform on rent growth. While there’s a decent local premium for asking effective rent change, the market really shines when it comes to price change in the leases executed by new renters. The actual lease transaction stats show an annual price increase of about 4% for Virginia Beach as of May versus the nation’s annual loss averaging 3.8%.

While Virginia Beach normally registers a comparatively high rate of resident turnover when initial leases expire, more households are staying in place now. May 2020’s retention rate of 54% is up from about 47% in May 2019. Virtually all of those living in professionally managed apartments are paying their rent. Last month’s collection figure of nearly 98% is a hair stronger than the year-earlier result.

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The big role that defense employers play in the local economy is helping limit job loss in Virginia Beach. While April’s job count is down 9.3% annually, any market losing less than 10% of its employment base qualifies as a star performer at this point.

Memphis Takes the Silver Medal

Memphis is a terrific performer for a couple of metrics that really count – rent growth and leasing momentum. Results are very solid for most other measures.

Effective asking rents as of May are up 2.9% annually, and the prices achieved in executed leases are up even more at roughly 5%. This is one of the few spots nationally where leases are being signed at rents that top advertised prices. Helping the area do well on rent growth, there’s solid momentum in leasing activity. While the market suffered big year-over-year drops in the number of leases generated in March and April, May 2020’s leasing volume topped the May 2019 level by about 11%.

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A significant block of obsolete product in Memphis tends to keep the market’s occupancy rate a little below the U.S. norm. Today’s occupancy figure of 94.9% isn’t among the best nationally, but year-over-year occupancy loss of just 30 basis points (bps) is less than half the U.S. norm.

May’s resident retention of about 60% for households with expiring leases is up from the year-earlier result of roughly 56%.

The Memphis job count as of April is down by about 64,000 positions from a year earlier, translating to 9.9% job loss. With stay-at-home orders boosting online shopping and, in turn, product delivery needs, it’s a plus for the Memphis economy that the metro is FedEx’s super-hub. The company reports that more than 1.4 million packages move through its Memphis sorting and distribution operations center every day.

Riverside is Also Holding Up

Like Memphis, metro Riverside-San Bernardino is a major product distribution hot spot, and that economic emphasis is helping limit job loss. This is another location where employment downsizing stays under the -10% threshold, with change coming in at -9.7%.

The rent change figures for move-in households really stand out for Riverside, since the market isn’t suffering the big price cuts seen nearly everywhere else in the state of California. Instead, there’s still annual growth of roughly 2% in effective asking rents, and executed lease prices are flat year-over-year. Furthermore, there is notable leasing activity: May 2020’s demand volume is up 15% from the May 2019 level.

Among the markets discussed here, Riverside-San Bernardino registers the strongest resident retention when initial leases expire. That figure is nearly 62% as of May, up from 55% a year earlier. More than 97% of the existing households met their rent obligations for May, with basically no deterioration in the ability to collect rent recorded year-over-year. (Do keep an eye on June’s payment stats. The market’s results for the initial week of the month did slip a little.)

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While occupancy in Riverside is off slightly, the resulting rate of 96.3% as of May is still strong.

Tampa is Florida’s Winner

Among Florida’s local economies, there’s less dependence on the hospitality sector in Tampa-St. Petersburg than in most other parts of the state. While that normally means there’s slower growth in Tampa, it’s a positive influence right now, yielding smaller downsizing. April’s local job count is off 9.4% from the year-earlier tally. That compares to losses of roughly 12% to 14% in Florida’s other big markets.

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While Tampa’s apartment occupancy rate – 94.9% as of May – has come down a little, the area has avoided meaningful rent cuts so far. Pricing is basically flat year-over-year for both effective asking rents and executed lease transaction rates. Leasing velocity is also at the breakeven point relative to year-ago momentum, recovering from big slides recorded in March and April.

Just under half of Tampa’s renters who had leases expiring in May chose to stay in place. While that’s a low figure by national standards, it’s up 4 percentage points relative to the local showing posted a year earlier. Rent collections here are solid so far, with 95% of the households paying their rent in May.

Houston is Avoiding Freefall

We’re going to grade on the curve and put Houston on the list for a better-than-expected performance.

Houston came into 2020 with the lowest apartment occupancy rate seen across the country’s 50 largest markets, and its annual rent change figure was barely in positive territory. Furthermore, the local apartment completion volume was set to surge this year. While that already seemed to set up the market for a struggle, oil prices then plunged early in the year, bringing more bad news for a local economy that’s heavily influenced by what happens in the energy sector.

Given that background, it’s encouraging that Houston rents haven’t collapsed. They are down: May’s rates are off 1% to 2% annually for both effective asking rents and executed lease rents. The size of that decline is much smaller than the losses that have emerged in most West Coast locations, so Houston now is a middle-of-the-pack performer for rent change nationally.

Good news for Houston includes that resident retention when initial leases expire has climbed about 5 percentage points, measuring the change from May 2019 to May 2020. And, a healthy 95% of today’s households paid their rent last month.

The demand trend here also is reasonably encouraging, at least for the moment. After leasing activity was cut in half on a year-over-year basis in late March, the size of that hole got smaller in April, and then there was an uptick of about 5% in year-over-year leasing during May.

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The news remains bad when it comes to Houston occupancy. May’s figure is weak at 92.8%, and that result is down 90 bps from year-earlier occupancy.