U.S. apartment performance metrics are gaining momentum with each set of data released in 2021. June’s results are fantastic overall, with occupancy and annual growth in effective asking rents reaching territory last seen when all-time highs were reached a little more than two decades ago.
Slicing and dicing the numbers by product classification shows that occupancy levels are stellar across the board. Class A, Class B and Class C properties all achieved occupancy above the 96% mark for the first time since the middle of year 2000.
Rent growth results are more varied, with Class A and B properties doing quite a bit better than their Class C counterparts.
Huge Momentum for Class A Projects
Observed in previous RealPage commentary, stunning performance improvement for luxury Class A product may be 2021’s biggest and most pleasant surprise, given that occupancy and rent achievement are surging despite a big wave of new supply. Completions totaled roughly 175,400 units across the nation’s 150 biggest metros during the first half of the year.
June occupancy for the Class A stock reached 96.1%, rising from 93.9% a year earlier to the highest level seen since the middle of 2000. In an even more impressive feat, stabilized Class A projects – meaning that brand new developments still in initial lease-up are excluded – have taken the lead for rent growth with effective asking prices for new leases up 7.4% year-over-year.
Among the markets to watch in the Class A space, Riverside/San Bernardino recorded the nation’s tightest occupancy at 98.1%. Luxury product rents there are up 23.6% annually.
Other spots doing quite well include the metros that lead in the production of high-paying jobs. Key examples are Austin and Salt Lake City. Class A product occupancy is up more than 300 basis points (bps) annually in each metro, and annual growth in effective asking rents has shot to around 15% in each location.
Indianapolis is an under-the-radar market for fast economic recovery. In turn, apartment occupancy in the Class A sector is up 310 bps annually, and the year-over-year price increase in the top-tier product category reaches about 11%.
The Florida markets also are Class A apartment performance hot spots. Focusing on Miami as an example, today’s luxury product occupancy is up more than 400 bps annual, and pricing is roughly 13% ahead of year-earlier rents.
Class B Performances Meet High Expectations
Viewed over time, middle-market Class B communities tend to be the best overall performers. Occupancy generally runs higher than in the Class A projects that have to deal with direct competition from new completions, and rent growth generally exceeds the results in the Class C sector where so many residents face affordability challenges.
As of June, U.S. occupancy in the Class B product category stood at 96.7%, up from 95.4% a year earlier. Annual growth in effective asking rents was robust at 7%.
RealPage puts about half of the nation’s apartment stock in this Class B sector, so metros with the best overall results likewise tend to rank among the performance leaders in the middle-market category. Let’s put Phoenix and Atlanta in the superstar positions. They are the top two metros for Class B annual growth in effective asking rents. Prices are up roughly 21% in Phoenix and about 18% in Atlanta. Both register Class B occupancy right around the 97% mark.
A half dozen metros register premium Class B occupancy that tops 98%. Within that group, annual rent growth results also look especially good for Sacramento at 12%. San Diego is a metro where Class B occupancy tends to be sustained at very high levels. The June reading reached 98.2%, and effective asking rents were up a little more than 8% year-over-year.
Philadelphia is an under-the-radar pick for the list of Class B product top performers. Today’s occupancy in this product category reaches 97.6%, and annual growth in effective asking rents is at roughly 9%.
Limited Pricing Power in Class C Units
The nation’s Class C apartment properties have posted tight occupancy throughout recent years, reflecting that big rent growth has meant that a growing share of households can only afford this lesser-quality product option.
June’s occupancy figure in Class C communities came in at 96.8%, inching ahead of the 96.2% rate recorded a year earlier.
Despite this impressive occupancy result, annual growth in effective asking rents was held to just 2.7%, dampened because so many Class C renters are paying about all that they can afford.
Raleigh/Durham and Portland rank at the top of the list for Class C performance hot spots simply because they are places that have had room for occupancy to tighten further during recent months. As of June, Raleigh/Durham Class C apartment occupancy was up 220 bps year-over-year to 96.9%, while annual growth in effective asking rents reached 4.7%. Portland registered an occupancy bump of 170 bps (to 98.4%, so that increase can’t happen again), with pricing up 4.1% annually.
Class C product occupancy climbed 60 to 80 bps year-over-year across Greensboro/Winston-Salem, Baltimore and Las Vegas, and each area posted annual growth of 6% to 7% in effective asking rents in the Class C inventory.