U.S. rental apartment occupancy reached 96.5% in 3rd quarter 2016. Up from 96.2% a year ago, today’s occupancy reading is just shy of the all-time peak of 96.8% set in the tech boom period of 2000.
“Many properties, especially communities at the middle-tier price point, are completely full,” RealPage chief economist Greg Willett said. “While an upturn in high-end deliveries is yielding more product availability in select spots, most new projects are moving quickly through the initial lease-up process.”
Demand Remains Robust, Tops Completions
Demand for 109,600 units in 3rd quarter well surpassed the 77,974 units in properties finishing construction, even though that completion volume was the biggest block of quarterly new supply delivered in this economic cycle. Demand realized over the past year totals 276,485 units, moderately ahead of the 261,345 units built in the same time frame.
“Retention of current renters remains a big factor in the favorable balance between demand and supply in the apartment sector,” Willett said. “With loss of renters to home purchase holding below the historical norm, the limited churn of residents is helping keep the occupied apartment count high.”
Rents Continue to Climb
Typical rents for new residents rose another 1.5% during 3rd quarter. The price increase posted over the past year registers at 4.1%. Monthly rents for new-resident leases now average a record $1,292.
Average annual rent growth has slowed from this economic cycle’s peak growth of 5.6% seen in 3rd quarter 2015. However, today’s annual rent growth pace is still very substantial compared to the long-term historical norm that runs just under 3%. The Class B sector’s middle-tier quality units are playing the biggest role in driving overall rent growth, as pricing in that product sector is up 4.9% year-over-year.
“With such big pricing differences seen between most new projects and typical existing units, additional construction isn’t impacting middle-market rent growth to the degree seen in past cycles,” Willett said.
Among individual large apartment market metros, Sacramento ranks as the country’s rent growth leader, holding that position for a second consecutive quarter. Pricing for new-resident leases in Sacramento climbed 11.6% during the past year.
The following list shows current top-performing metros for annual rent growth.
Deliveries Haven’t Yet Peaked
A recent slowdown in the number of multifamily housing units authorized by building permits suggests that the apartment construction volume should soon cool slightly. For now, however, ongoing building remains in line with the very high levels posted over the past year or two. Properties totaling 555,121 units are under construction across the country’s 100 largest metros. The annual pace of completions now looks like it will peak around the middle of 2017.
Among individual large metros, Nashville registers the most aggressive building pace relative to its existing product inventory. Ongoing construction of 15,627 units will grow Nashville’s stock by 11.9%. At the next tier of activity, inventory growth in the range of 7% to 8% is on the way in Dallas, Charlotte and Austin.
The Outlook Remains Positive
“Most metros, with lots of new apartments now under construction, have very tight occupancy rates and are recording very strong rent growth,” Willett said. “There’s room for performances to slow a little from current levels and still stay very healthy in the big picture.”
WATCH: More Apartment Market Data Insights from MPF Research
For more apartment industry insights, watch our Q3 MPF Research quarterly apartment market update featuring National Multifamily Housing Council (NMHC) President Doug Bibby.