Savannah Duncan
After hitting peak effective rent growth of 5.32 percent in July 2011, the apartment market has started to stabilize. Year-to-date effective rent growth in July was 4.42 percent, up .54 percent from June, according to Axiometrics.
“Since the tear the apartment market was on in July of 2011, there has been a gradual moderation in both effective rent and occupancy growth, though we are still near historical highs for both,” says Ron Johnsey, president of Dallas-based Axiometrics.
Corpus Christi, Texas, posted the most improved market, with annual rent growth from 3.22 percent in July 2011 to 7.74 percent in July 2012. On the other hand, several of the bottom markets, such as San Jose, continue to post overall positive annual growth but were unable to maintain strong year-over-year gains. San Jose’s rate fell from 15.17 percent last year, to 9.17 percent this July.
Axiometrics says that REIT properties, which account for 12 percent of the company’s database, continue to outperform the broader national market. REIT properties posted 6.46 percent effective rent growth in July 2012, compared to 6.35 percent this time last year. However, the report states that in 2011, REIT properties lowered rents each month from August to December, thus the July results could be the peak year-to-date growth rate experienced for the remainder of the year.
Source: Axiometrics
New Supply
“Interestingly, new supply is also just now really starting to hit the market in a big way, so at this point it can’t be faulted for the moderation in rent growth, especially as some markets — like Houston, Southeast Florida, Nashville and Denver — are actually see some growth rates higher than they were a year ago,” Johnsey says.
The rate of new apartment complex deliveries is accelerating, with approximately 56,000 units slated for delivery by year’s end, and 129,000 units planned to come on line in 2013. According to Axiometric’s pipeline database, since annual rent growth turned positive in May 2010, construction has started on more than 311,000 units.
“The performance of the apartment market between now and next spring will provide a better idea of how the new deliveries are impacting existing product, as close to 89,000 new units will be delivered between now and April 2013,” Johnsey says.
Third And Fourth Quarter Projections
By the end of the year, the company projects effective rent growth to reach 4.1 percent. Additionally, rent growth is anticipated to occur at a more stable rate, similar to the 1990s, instead of the “up and down” pattern the market has experienced during the last several years.
According to the report, effective rent growth in August and September should provide more clarity, as the final three months of the year tend to experience a slow down in growth. However, if the market mimics 2010 and 2011, full-year effective rent growth could reach as high as 4.3 percent.