Steady Performing Markets Offer Limited Risk, Limited Growth

Apartment markets that either outperform or underperform usually get the most attention from industry observers. And for good reason – assets in those markets can boost or drag on an investment portfolio. However, most of these markets tend to be volatile, and for participants in these markets, timing the market is key. Performances are often determined by movements in the job market and business climate, population fluctuations, apartment construction patterns and a number of other factors.

On the flip side, there are a handful of markets where performances are fairly consistent over time. While they don’t get the same amount of attention or offer the upside potential of a high-growth market, they can offer limited risk. Here’s a look at five such markets.


Metros in the Northeast tend to post higher occupancy and limited rent growth. Philadelphia is a prime example of those trends. Over the past 10 years, occupancy in Philadelphia has averaged 94.9% and annual rent growth has averaged 1.9%. Occupancy has run above the 10-year average during the current cycle, but not by much. Over the past five years, rates in Philadelphia have mostly hovered around 95% to 96%. In 2017’s 2nd quarter, occupancy in Philadelphia registered at 96.3%. Meanwhile, annual rent growth has ranged from around 2% to 3% over the past five years, slightly above the 10-year average.

Philadelphia’s slow-and-steady performances trace to economic and demographic trends. The metro’s economy has a heavy concentration of education and healthcare institutions. Those sectors, which comprise nearly one-fourth of all jobs in the metro, somewhat insulate the economy during downturns, but they also limit upside potential during economic expansions. And the metro is experiencing sluggish population growth. The population in Philadelphia increased just 1.6% from 2010 to 2015, well below the national average (3.9%). Like many Northeast metros, the population base in Philadelphia has a relatively high median age, which presents headwinds for the local apartment market.


While Baltimore is classified by the Census as a South region metro, its apartment market behaves more like that of a Northeast metro. Similar to Philadelphia, Baltimore has stable economic drivers in education and healthcare. But Baltimore also has a large concentration of government jobs. Those slow-growth segments comprise more than one-third of all jobs in the metro. Over the past five years, job growth in Baltimore averaged just 1.4% annually. Furthermore, Baltimore’s population growth from 2010 to 2015 (3.1%) was below the U.S. average (3.9%), and the metro’s median age in 2015 (38.1) registered above the U.S. norm (37.8).

Baltimore Apartment Research

Though Baltimore was hard hit during the recession, occupancy in the metro has mostly hovered around 95% to 96% over the past 10 years. For the past five years, Baltimore’s apartment market has been essentially full, with occupancy averaging 95.5% over that period. Despite tight occupancy, rent growth has remained limited, registering below 3% annually over the past five years. During that period, rent growth averaged 2.1%, which also matched the metro’s 10-year average.

Minneapolis/St. Paul

The Twin Cities is another market where occupancy is almost always tight and rent growth is fairly limited. Over the past 10 years, occupancy rates have generally remained in the 96.5% to 97.5% range. Even with few vacancies over the past decade, rent performances have consistently landed around 2.5% to 3.5%.

While many other slow-and-steady growth markets mirror economic and demographic trends, Minneapolis/St. Paul’s slow-growth profile contrasts the metro’s structural profile. The Twin Cities unemployment rate has significantly trailed the U.S. average rate over the past 10 years. Job growth, however, has remained in line with or above the national average over much of the same time. Minneapolis/St. Paul also boasts 17 Fortune 500 headquarters that add a number of high-paying jobs in the metro. Meanwhile, the metro’s population grew more than 5% between 2010 and 2015, easily above the U.S. average rate. And the median age as of 2015 (36.7) was relatively low.

With a mix of economic and demographic characteristics that usually result in strong apartment performance in other markets, limited rent growth in Minneapolis/St. Paul appears largely due to operator sentiment.

San Antonio

A slow-and-steady growth profile is certainly present in San Antonio. The Texas metro’s primary economic engines are healthcare and government (including military). Those industries account for at least one-third of jobs in the metro and provide some stability for the local economy, but they also limit the market’s ability to sustain upward momentum. Another factor limiting San Antonio’s apartment performance is the metro’s affordable single-family market.

San Antonio Apartment Research

Unlike Philadelphia, Baltimore and Minneapolis/St. Paul, occupancy in San Antonio has remained at relatively low levels over the past 10 years, averaging 92.9% over that period. Over the past five years, occupancy in the Alamo City metro has remained around 93% to 94%. Rent growth levels have shown remarkable consistency over the past 10 years, averaging 2.2% over that time. The majority of increases have landed in the 2% to 3% range. Even in the recession, rent contractions were very limited and short-lived.

San Diego

Also know for stability – and recently for low risk – is San Diego. Occupancy in San Diego has remained tight, with rates ranging from 96% to 97% over the past 10 years. Averaging 3.0% over the past decade, annual rent growth has trended a little higher than in Philadelphia, Baltimore, Minneapolis/St. Paul and San Antonio. However, San Diego has diverged from its slow-and-steady patterns recently. Similar to other markets in Southern California, San Diego has seen uncharacteristically strong rent growth over the past three years. In fact, San Diego’s performances averaged 6.0% during that period.

San Diego’s historical stability comes from the presence of military, defense and education institutions. Recent growth comes, in part, from the presence of technology, aerospace and life sciences industries. Demographic characteristics provide additional tailwinds. San Diego’s population grew 6.2% from 2010 to 2015, faster than the national average (3.9%). However, San Diego’s population is significantly younger than the U.S. overall, with roughly a quarter being between 20 and 34 years old.