NEW YORK — Over the course of 2017, asking rents for the national apartment market increased 3.9 percent while effective rents grew by 3.3 percent, according to a fourth-quarter preliminary trends release from Reis Inc. Although still representing rent growth, these rates reflect a deceleration in apartment market fundamentals compared to recent years.
This deceleration is due in part to the large amount of new supply coming online. A total of 43,769 units were completed in the fourth quarter, raising the year-end total to 213,802 units. The national apartment market has not seen new completions in excess of 200,000 units since 1986, says Reis.
“At 4.5 percent, the national vacancy rate increased 10 basis points from 4.4 percent in the third quarter. This represents a 30 basis point increase in year-over-year vacancy,” says the report. “Vacancies have more or less been on an upward march since the middle of 2016.”
At $1,364, the national average asking rent grew 0.4 percent in the fourth quarter. This figure is well below the 0.9 percent average quarterly growth rate for the prior six quarters. Effective rent growth of 0.3 percent in the fourth quarter was also below the 0.8 percent average quarterly growth.
However, the gap between asking rent growth and effective rent growth remained within a 10 basis point range, which suggests that landlords’ offers of reduced rent were less aggressive, therefore demand remained relatively robust.
Of the 79 metros tracked by Reis, 50 experienced an increase in vacancy in the fourth quarter. Of the 50, Greenville, S.C.; Lexington, Ky.; Colorado Springs, Colo.; and Omaha, Neb. experienced increases in excess of 0.8 percent. Metros with the largest decrease in vacancy include Birmingham, Ala.; Charleston, S.C.; Houston; Las Vegas; and Jacksonville, Fla.
Reis reports that 21 metros experienced a decrease in effective rent during the fourth quarter, including Columbia, S.C., suburban Virginia, Boston and San Jose, Calif.
The number of metros seeing higher vacancy rates and effective rent declines reflects the boom in construction. Continued positive job growth from 2017 is expected to maintain a steady demand for new apartments in 2018. Any further increases in vacancy and/or decreases in effective rent will likely be a result of continued increases in new supply, Reis reports.
“While we expect a significant decline in inventory growth starting in 2019, projects slated for completion will continue over at least the next 12 months,” concludes the report. “Vacancies will rise accordingly before tapering off in 2019.”
— Kristin Hiller