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MPF Research Reports Accelerating Apartment Rent Growth, Particularly in the Western U.S.

New resident pricing jumps 5.2 percent, while occupancy tightens to 95.9 percent

CARROLLTON, Texas (July 1, 2015) – U.S. apartment rent growth is at a 15-year high, according to MPF Research, the rental market intelligence division of RealPage, Inc. (NASDAQ: RP). Mid-2015 new resident rents topped mid-2014 rates by 5.2 percent, with that annual growth including a price bump of 2.5 percent occurring during April to June. Both the annual and quarterly rent growth figures are the biggest hikes in those performance metrics seen since the 1999-2000 timeframe.

Renewal Pricing Up
Renewal leases executed in the second quarter were priced 4.3 percent above last year’s renewal rents. Renewal pricing is growing in importance for apartment owners and operators, as more residents are staying put – rather than moving – when their leases expire. In the second quarter, 51.9 percent of households with expiring apartment leases remained in place, compared to the 50.6 percent retained when leases expired a year earlier. Prior to 2010, typical resident retention upon lease expiration ran at a notably lower level of around 45 percent.

“While apartment rents are rising at a significant pace all across the country, the nation’s average price increase is being skewed quite a bit by the surging rents in the Western region of the country,” said MPF Research vice president Greg Willett. Annual new resident rent growth is at 7.8 percent in the Western region, compared to 4.1 percent in the South, and 3.3 percent in both the Northeastern and Midwestern regions. Furthermore, rent growth is accelerating much more quickly in the West than other parts of the country.

Annual Rent Growth for New Residents by Region
Year Ending in the Second Quarter 2015
Metro Current Rent Growth Year-Ago Rent Growth
West 7.8% 5.0%
South 4.1% 3.0%
Northeast 3.3% 2.4%
Midwest 3.3% 2.1%

“Throughout the current economic cycle, the nation’s rent growth leaders have been in the Pacific Northwest, from Seattle down through the San Francisco Bay Area, plus Denver,” stated Willett. “What’s really driving such high levels of overall growth in the West is that price increases, well above the national norm, have spread to the region’s other large markets, including all of Southern California, Phoenix, Las Vegas, and Sacramento. These areas were slow to achieve economic recovery coming out of the recession, but now are adding jobs and households at levels that stimulate considerable apartment demand, with occupancy rates tightening and rents rising sharply.”

Among the nation’s biggest metropolitan areas, 16 have new resident rent growth climbing more than 6 percent annually, with 13 of them in Western markets.

Leaders in Annual Rent Growth for New Residents
Year Ending in the Second Quarter 2015
Rank Metro Rent Growth
1 Oakland 11.8%
2 Portland 11.3%
3 Denver-Boulder 10.2%
4 San Jose 10.0%
5 San Francisco 9.9%
6 Seattle-Tacoma 8.4%
7 Sacramento 7.6%
8 San Diego 7.5%
9 Atlanta 7.3%
10 Phoenix 7.2%
11 Las Vegas 7.1%
12 Los Angeles 6.7%
13 Fort Worth 6.6%
14 (tie) West Palm Beach 6.2%
14 (tie) Riverside-San Bernardino 6.2%
16 Orange County 6.1%

Tight Occupancy, Increased Demand and Sustained Construction
Sizable rent growth in U.S. apartments reflects that occupancy is very tight. The occupancy figure as of the second quarter was 95.9 percent, up slightly from 95.6 percent a year earlier.

Demand for apartments across the nation’s 100 largest markets came in at 98,210 units during the second quarter, well surpassing concurrent completions that totaled 52,666 units. Annual demand for the second quarter registered at 250,157 units, just ahead of the 240,715 new units delivered.

Ongoing construction continues to hover around the mark of 400,000 apartments—a level that has been sustained for two full years—with 421,345 units under construction in the 100 largest metros at the end of the second quarter.

“While new supply tends to slow rent growth historically, that hasn’t been the case as of late,” Willett said. “Construction on luxury units in the most desirable neighborhoods results in new product rents being too high to pull many residents out of the existing stock. Nationally, the typical monthly rent for new communities is around $1,600, which is a little more than 20 percent over rents in the best properties built prior to 2010.”

MPF Research forecasts that U.S. apartments will remain essentially full in 2015-2016. “While overall occupancy should inch down very slightly, it really just reflects the volume of product moving through initial lease-up, rather than any real softening in the anticipated performance,” Willett said.

Rents will likely continue to rise. “The pace of price increase should cool a bit from today’s level, but annual growth, at roughly 4.5 percent or better, is predicted over the next 12 to 18 months,” Willett said.

Rent growth and other key performance indicators for the U.S. apartment market are discussed by MPF Research analysts in this video.

For more information about MPF Research, visit: www.realpage.com/mpf-research/.

About RealPage
RealPage, Inc. is a leading provider of comprehensive property management software solutions for the multifamily, commercial, single-family and vacation rental housing industries. These solutions help property owners increase efficiency, decrease expenses, enhance the resident experience and generate more revenue. Using its innovative SaaS platform, RealPage’s on-demand software enables easy system integration and streamlines online property management. Its product line covers the full spectrum of property management, leasing and marketing, asset optimization and resident services solutions. Founded in 1998 and headquartered in Carrollton, Texas, RealPage currently serves over 10,000 clients worldwide from offices in North America, Europe and Asia. For more information about the company, visit http://www.realpage.com.

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