Despite Seasonal Slowdown, U.S. Apartment Market Held Strong in Early 2019

The U.S. apartment sector held relatively steady in the first few months of 2019. Demand in these cold weather months was light, even compared to the normal seasonal pattern, but annual absorption remains strong thanks to the robust prime leasing season that ended in September. Occupancy is still in good shape and rent growth remains solid.

Light demand in 1st quarter 2019 wrapped up a slower-than-usual seasonal downturn this winter. Roughly 21,500 units were absorbed in the first three months of the year, the slowest 1st quarter period since 2013. By comparison, 1st quarter demand averaged nearly 31,400 units this cycle. Combined with the demand loss suffered in 4th quarter 2018, the typically slow leasing season during the cold weather months was especially weak with only about 12,300 units absorbed. The last time demand was this soft during the slow season was in 2012, early in the economic cycle.

However, while the periodic slowdown this year was especially sluggish, prime leasing season was expressly robust with nearly 288,000 units absorbed in 2018’s 2nd and 3rd quarters. This was the strongest showing since before the current cycle began and left annual demand in great shape in 1st quarter 2019, at about 300,000 units, a volume that easily matched concurrent supply.

Annual Absorption Rate Chart

With apartment demand essentially matching new supply, occupancy didn’t move much in early 2019. At 95.2%, occupancy in the U.S. apartment market is up 20 basis points (bps) year-over-year and is at one of its strongest showings in 18 years. While strong, occupancy in 1st quarter is down a bit from the cycle peak of 95.8% achieved just a few quarters ago in 3rd quarter 2018.

Rent growth also remained strong in 1st quarter, with prices increasing 3.3% year-over-year, roughly the same performance the nation has seen for three quarters now. This sustained period of strength occurred after a slowdown that took rent growth to 2.5% in 2nd quarter 2018 before regaining some momentum in the last half of the year.

When compared to more historical performances, the apartment market’s recent rent growth is solid. Annual price increases have been the norm for the U.S. for 35 consecutive quarters – more than eight years. During that time frame, the annual increase averaged at 3.7%. In the last prolonged rent growth time frame, between early 2004 and fall 2008, the average was lower at 2.8%.

Apartment Rent Growth Chart

Looking forward, the performance outlook for the U.S. apartment market calls for much of the same throughout 2019, though some deterioration is anticipated in 2020, due to some slowing expected in the national economic picture.