The U.S. apartment industry continues to exceed performance expectations, with real rent growth levels in April 2015 surpassing the cycle’s previous peak set back in 2011.
New highs in rent growth were seen for both new resident leases and for renewal leases.
April 2015, total lease-over-lease rent growth nationally measured 6.1% — well above the 2011 peak of 5.3%, based on actual executed rents for both new leases and renewals. (Lease-over-lease rent growth, also called trade-out, is a comparison between the previous lease effective rent to the new lease effective rent on the same unit.)
New leases surged 7.8% — meaning that a new resident paid, on average, 7.8% more than the previous occupant of the same unit. Renewal leases jumped 5.0% — meaning that a renter who chose to stay put paid, on average, 5.0% more than they did under their previous lease for the same unit.
The statistics come directly from a subset of the nearly 10 million units available to MPF Research, as a division of the RealPage platform. More traditional survey methods provide insight only into asking rents (inclusive of concessions) for new leases, regardless of whether anyone signed a lease at those prices. The MPF statistics sourced from RealPage reflect signed leases for both renewing renters and new renters, providing accuracy and granularity previously unavailable.
New lease rent trade-out is highly seasonal (compared to steadier trends in asking rents and in renewal rents). April is an especially important month, being the start of the peak leasing season. Therefore, a strong April in many ways is more meaningful than strong performances in the first three months of the year – given the sheer number of leases in play.
Most property managers strategically schedule the bulk of their leases to expire in spring and summer months, when demand is strongest.
Lease-over-lease rent growth is an early indicator of revenue trends for apartment operators and owners. An impressive start to the peak leasing season could point to another big year for the U.S. apartment industry – counter to mainstream expectations of slowing momentum. Surveys of industry executives from leading trade groups like the Urban Land Institute (ULI) and the Pension Real Estate Association (PREA) indicated a widespread view that the apartment sector’s growth pace would diminish in 2015. The same view was held going into 2014, only to see rent growth exceed expectations.
The results to date continue to show the impressive depth of demand for apartments, even with rising rents and record levels of new supply in markets all across the country. Neither headwind has proven to be as formidable as anticipated. As additional proof: Apartment resident turnover remains low.
Renewal conversion rates, the share of expiring leases being renewed, in April came in at 53.9%, up 90 bps year-over-year – continuing an upward trend. And occupancy rates remain in the 95.5% range, both sourced from RealPage’s lease transaction insight.
Of note, the statistics are based on a same-store set of apartments utilizing RealPage software products between April 2010 and April 2015.
Apartments in the dataset are professionally managed and tend to be of institutional quality. The West and South regions, where the apartment stocks are more reflective of institutional quality product, comprise larger shares of the dataset than the Northeast and Midwest.
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