Overachieving Apartment Occupancy Markets

Apartment occupancy is tight almost everywhere, but some U.S. apartment markets are achieving occupancy rates well ahead of historical norms.

U.S. occupancy for market-rate apartments is at an all-time high of 97.3% as of September. That figure is 230 basis points (bps) ahead of the already healthy norm of 95% seen since the beginning of 2010. While all asset classes made notable progress recently, the Class C units have made the most. The nation’s most affordable line of product is now 280 bps ahead of the stock’s decade average.

Among the country’s 50 largest metros, Las Vegas ranks as the biggest overachiever. Today’s 97.6% occupancy surpasses the 93.7% average for the past decade or so by 390 bps. This is especially encouraging given that the Las Vegas job base is heavy in Leisure and Hospitality Services employment, the sector hardest hit by job losses in the wake of the COVID-19 pandemic. While occupancy is tightly clustered across the product spectrum in Las Vegas, the Class C units backfilled most notably in recent years. At 97.7%, occupancy in this market’s affordable stock is 560 bps ahead of the asset’s decade average. Monthly rental rates in Las Vegas Class C stock run at an average of $1,000, about $200 behind the national average.

Current occupancy also is running at least 300 bps over the typical rate in Memphis, Greensboro/Winston-Salem, Phoenix, Atlanta, Jacksonville, Tampa, Virginia Beach and West Palm Beach. With the exception of West Palm Beach, all of these markets led the nation for occupancy growth in the Class C product line. Memphis saw the nation’s biggest jump, with current occupancy standing 690 bps ahead of the decade average. Meanwhile, Atlanta and Jacksonville’s Class C stock was close to 600 bps above historical norms. The progress in West Palm Beach was also ahead of the national norm but was more reserved than the other markets in this grouping, with Class C occupancy that is 340 bps above typical volumes. While progress has been notable, however, the affordable stock in all these markets remains notably behind the national average. In fact, the rates in Class C stock in Memphis, Atlanta and Jacksonville are the nation’s lowest readings at around 90% to 91%.

With recent demand proving so strong, occupancy is 200 bps to 290 bps above normal in many locations where notable construction activity has tended to yield more product availability historically. Metros in this category include San Antonio, Houston, Raleigh/Durham, Dallas, Charlotte, Austin, Salt Lake City and Nashville. Except for Houston, these markets are the nation’s top spots for inventory growth in the past decade. The existing base in each of these markets swelled by roughly 32% to 46% in the past 10 years, at least twice the pace of the U.S. average of 16%. Houston, though not in the top 10 for this measure, just missed a leadership position, with a notable increase of 22.2% in the past decade.

The lone spot among the top 50 metros that lacks an occupancy premium now is San Francisco. Even there, however, the performance is solid. Occupancy of 95.7% exactly matches the norm for the past decade or so. The Class C stock in San Francisco has seen progress, with occupancy of 96.2% registering 60 bps ahead of the long-term average for that asset class. This progress was wiped out, however, by the performance in the Class A units. This is some of the most expensive product nationwide, with monthly rents averaging $3,679. At 95.7%, September occupancy in San Francisco’s luxury stock is running 70 bps behind the decade norm for this asset.