Apartment Market Ends Year on High Note

by | Dec 26, 2012 | Rental Property Management Tips

Countering the typical seasonal trend, annual effective rent growth for the apartment market increased from 3.60% in October to 3.72% in November, according to the latest data from Axiometrics Inc., the leading provider of apartment data and market research.

Axiometrics also notes that the average square footage for new apartment construction is decreasing, reversing a trend that reached its peak at an average 1,008 square feet for properties built in the 2001-2005 timeframe. Still, while the current average of 982 square feet is lower than in recent years, it is still higher than the 834 square foot average for properties built from 1981-1985, according to Axiometrics.

“As we believed would be the case at the beginning of the year, Class C properties have led the way in both effective rent and occupancy growth throughout the year, and helped lead a turnaround in momentum since August,” said Ron Johnsey, president of Axiometrics. “In addition, while many coastal areas and the top Texas markets continue to lead the nation in effective rent growth, it is interesting to note that for the first time in four years Las Vegas posted positive annual growth during November.”

Monthly, Year-to-Date, and Annual Effective Rent Growth and Occupancy

The national annual effective rent growth increase from 3.60% in October to 3.72% in November reversed the declines recorded for each month from April to October. Most of the increase can be attributed to Class B and Class C properties. Class B properties increased from a 3.6% annual effective rent growth rate in October to 3.8% in November. Class C properties performed even better, increasing from 4.0% in October to 4.2% in November. Since reaching a peak growth rate of 4.8% in May, Class A properties continued their slowdown, growing at only a 3.6% annual rate in November.

The national occupancy rate decreased slightly in November, declining from 94.43% in October to 94.26% in November. This decline was quite close to the declines recorded in November 2011 and 2010. However, overall monthly sequential growth the past few months has been higher than the comparable months of 2011, leading to an improvement in year-over-year changes and an increase in the annual occupancy growth rate from May to November.

Top Markets

Axiometrics reports that as of November, all six of the major areas in Texas were outperforming the national average for annual effective rent growth, including: Corpus Christie (8.62%), Houston (6.77%), Austin (5.40%), Fort Worth (4.30%), Dallas (4.28%), and San Antonio (3.83%). Midland-Odessa has recently been the hottest area in the country due to the oil and natural gas boom, leading to rent increases of 25.2% over the last 12 months.

Many Florida areas have also reported strong growth, helping them to make up some of the ground lost during that state’s downturn from 2006-2009. Specifically, Naples (8.26%), Palm Bay (7.45%), West Palm Beach (6.37%), Sarasota (5.67%), Fort Lauderdale (5.55%), and Cape Coral (5.36%) all ranked in the top 21 for annual effective rent growth in November. As a whole, the Florida outperformed the national average early in the recovery period but had lagged most of the last two years. The early outperformance was mostly due to a strong rebound in southeast Florida, particularly in Miami, which maintained an annual growth rate of 4-6% through most of 2011 and 2012.

While Las Vegas areas still rank in the bottom tiers in the U.S. for annual effective rent growth, its 0.97% growth rate in November was the first positive rate reported in more than four years, and some areas saw the highest rates since the first quarter of 2007. Still, even with the improvement in November, the level of effective rent in Las Vegas ($752) is still the same as it was nine years ago. However, recent improvement in single-family home prices could lead to higher rental rate growth as well if historical patterns hold (i.e., single-family home price increases tend to lead effective rental rate increases).

Smaller Apartments

Average square footage sizes for new apartments are shrinking but have yet to reach historical lows. Axiometrics reports, however, that the trend differs by area. For example, Washington, DC is one market bucking the national trend, with lease-up properties actually larger right now than in previous years. While Dallas, Denver, and Houston are all trending toward smaller unit sizes for new product, those markets may actually see a slight increase in coming quarters as more units are delivered in the suburbs, where average sizes tend to be larger.

Seattle is taking the smaller floor plan trend to another level. Specifically, 18 properties as of December 17 were in lease-up in Seattle, and of that group, 11 had an average unit size of 759 square feet or less, most of which were located in the urban core. Some suburban product being produced in the Seattle area still averages close to 1,000 square feet per unit.

Axiometrics is the only multifamily research provider to survey every property in its database at the floor plan level every month. Every property. Every month. Only Axiometrics.

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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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