A newly released report from Axiometrics Inc. shows that during the last three months of 2011, national effective rental rates for the apartment sector declined by 1.05 percent. This compares to a decline of just 0.59 percent over the same period in 2010.
However, because effective rents had grown so much during the previous eight months of 2011, and because units at the upper end of the market are nearing capacity, pricing power for apartment owners remains strong. Consequently, rents should continue their upward trajectory nationally in 2012, the Dallas-based apartment data provider predicts.
Axiometrics, which measures the performance of the apartment sector every month by surveying more than 18,000 properties and 4.8 million units, projects effective rent growth in 2012 to reach 5.50 percent.
“The apartment market’s strength is being driven by demand from modest job growth, strong renter household formation, and low supply,” said Ron Johnsey, president of Axiometrics Inc., in a news release.
“These factors will make 2012 a strong year, better than both 2010 and 2011, at least from the owner and landlord perspective,” continued Johnsey. “Residents in most markets will begin to move more to control their housing costs, such that people in Class A properties will begin to migrate to Class B properties to keep their monthly rent constant.”
Trends in effective rents
Nationally, effective rents in 2011 increased by 4.1 percent, down slightly from a 4.4 percent rise in 2010. The difference occurred mostly in the last three months of the year. Broken out by property class, Class A properties ended the fourth quarter of 2011 with annual effective rent growth of 5.3 percent, Class B properties with a rate of 4.2 percent, and Class C with a rate of 3.8 percent.
However, since their trough in the third quarter of 2008, rents for Class A, B, and C properties have all increased such that they are now higher than their prior peak in the third quarter of 2008. From December 2009 to December 2011, the level of effective rent increased from $929 to $1,011, or almost a 9 percent increase over two years for all classes of properties.
Occupancy rate trends
The national occupancy rate finished 2011 at 93.5 percent, up 40 basis points from 93.1 percent the prior year, according to Axiometrics. Again, differences exist according to property class. Specifically, Class A properties have averaged 95.3 percent occupancy, which is the industry benchmark for full capacity, since the second quarter of 2010.
The tight occupancy in Class A properties has filtered down to Class B properties, which are now at 94.3 percent. As a result, Axiometrics expects Class C properties to significantly improve their occupancy rate in 2012, from an average of 91.4 percent in the fourth quarter of 2011 to more than 93 percent this year. At such a rate, Class C units would be near their peak occupancy, last reached in 2006.
Momentum varies by market
Across major markets, there was a significant difference in momentum for effective rent growth and occupancy from 2010 to 2011 (see chart). The markets with the strongest momentum included San Francisco, Santa Ana (Orange County), Houston, Charlotte, Los Angeles, and Dallas. The markets losing the most momentum were Raleigh, Nashville, Washington, D.C., West Palm Beach, New York, and Phoenix.
Courtesy of Axiometrics