Real Data just released their March, 2019 survey report for the Piedmont Triad and the results show that the apartment market continues to be very strong here in the Piedmont Triad. They report that the average vacancy rate is 3.7%, down from 5.5% in March of 2018, and average rent is $898 ($0.943/SF) versus $842 ($0.888) this time last year. From their market summary:
The Triad apartment market continues to tighten with an average vacancy rate at just 3.7%. Over the last year demand has been strong with 2,595 units absorbed, easily offsetting the 1,487 units added to the supply over the same time period.
The development pipeline included 2,081 units under construction and another 4,462 units proposed. Guilford County is the most active with 1,183 units under construction and an average vacancy rate at 3.3%.
The region has posted strong rent growth of 4.5% over the past twelve months…
With demand expected to remain strong, the average vacancy rate should hold close to 4.0% over the next year. Rents will continue to grow an an annual rate of 4% to 4.5%.
You can buy a copy of Real Data’s full report here.
RealPage released its rent report for the first quarter of 2019 which showed that the Triad had the fourth highest increase in the country. From an article in the Triad Business Journal:
Rent prices in the Greensboro/Winston-Salem metro area saw a 5.2 percent increase in the first quarter, with an average rent price of $830.
Greensboro/Winston-Salem ranked No. 4 in rent price increase among large metros, according to a first quarter apartment market report by RealPage Inc. (NASDAQ: RP). Phoenix, Arizona (up 8 percent), nabbed the top spot, followed by Las Vegas, Nevada (up 7.9 percent), and Atlanta, Georgia (up 5.3 percent). Charlotte ranked No. 11, with a 4 percent increase in rent prices.
Greensboro/Winston-Salem outpaced the national average, with U.S. apartment rents increasing by about 3.2 percent on an annual basis.
According to a report released by Zumper, rents in Greensboro and Winston-Salem were among the lowest in the 100 markets they surveyed. From an article in the Triad Business Journal:
Of 100 U.S. cities surveyed, Greensboro was No. 88 with average monthly rent of $720 for one-bedroom unit ($820 for two bedrooms). The prices reflected a 5.9 percent yearly increase for one bedroom and a 3.8 percent jump for two bedrooms.
Winston-Salem, which was No. 78 on the list at $780 ($840 for two bedrooms), has experienced a larger spike in rent prices, with increases of 9.9 percent and 10.5 percent, respectively…
Charlotte ($1,160 and $1,310) ranked No. 33; Durham ($1,110 and $1,270) was No. 43; and Raleigh ($1,000 and $1,150) was No. 48.
According to this article in the Wall Street Journal, industry analysts expect slower rent growth for apartments across the US in 2019. A key factor is that more units are expected to come online this year than we’ve seen in any year for three decades. From the article:
Developers are slated to complete another 319,000 new units in 2019, up from last year’s still-aggressive figure of 287,000 units. That is the largest influx of new apartment supply in roughly three decades.
Filling those units could be particularly challenging if the economy begins to slow as expected.
“We certainly saw we can handle that [much supply] as long as the economy is producing 200,000 jobs a month, but that’s realistically not the expectation for next year,” said Greg Willett, RealPage’s chief economist.
As has been true for the last ten years, the pace of construction in the Piedmont Triad has lagged that of most of the country, including our neighbors in Raleigh and Charlotte, so this market may not see the same slow down that’s anticipated for other markets.
Real Data’s October survey results show that the apartment market remains very strong in the Piedmont Triad. Their market summary says it best:
The Triad apartment market is tightening with an average vacancy rate at just 4.0%. Over the last year demand has been strong with 2,348 units absorbed, easily offsetting the 1,595 units added to the supply over the same time period.
The development pipeline includes 2,814 units under construction and another 2,141 units proposed…
The region has posted strong rent growth of 3.8% over the past twelve months. The average rental rate is now $876 per month, as compared to $832 just twelve months ago. One bedroom units average $769, two bedrooms rent for an average of $869 and three bedrooms rent at $1,093 on average.
The report also indicates that the average vacancy rate should hold close to 4.0% for the next year and rents will continue to grow at a yearly rate of 3.5-4.5%.
So which submarkets are the hottest in the Triad?
Occupancy – Guilford Northeast (97.5%)
Average Rent – Guilford Central ($1,091)
Average Rent per SF – Forsyth Central ($1.172)
Units Under Construction – Forsyth Central (573)
To get a full copy of the Real Data October, 2018 report go to aptindex.com.
Home sales have slowed in recent months and according to this article in the Wall Street Journal, the culprits contributing to the slowdown in the for-sale market are rising prices, rising mortgage rates and the Trump administration’s tax bill that reduced incentives to own homes. That could be good news for the apartment industry:
Yet other analysts argue that all the gloom hanging over housing is good news for owners of apartments, like AvalonBay Communities, which is up 7.4% over the past six months, andEquity Residential, which has added 5.7% in that time. Rental-home companies have also gained, with American Homes 4 Rent climbing 3.8%.
“Having pressure on home sales is a positive for the rental side of the industry,” David Singelyn, American Homes chief executive, told investors recently. “It should all fare very, very well for pricing power going forward.”
In fact, we could also see room for rents to rise in the near future:
Not only is the added cost likely to keep some renting longer, $135 is about 8% of the average monthly rent collected by American Homes, suggesting that there is room for these companies to raise rents and remain less expensive than comparable homes for sale, he said.
To that end, Freddie Mac said last week that about 78% of Americans view renting as more affordable than owning, a rise of 11 percentage points since the mortgage company released similar survey data six months ago. Freddie also said the proportion of respondents who said they have no plans to buy homes also rose.
…turnover rates sank to their lowest point on record (data available from 2000) at 46.8 percent. Owners strived to lower turnover costs by focusing on resident retention and increasing renewal rates. The U.S. Census Bureau reported a similar historic low in renter mobility rates in 2017 (21.7 percent) compared to 35.2 percent in 1988.
The National Apartment Association recently published the results of their 2018 Income & Expense Survey, and offered some key takeaways in an Executive Summary:
Operating expenses increased by 2.1 percent, the slowest rate of growth since 2013.
Net Operating Income (NOI) grew by 5.8 percent, up 2 percentage points over 2016, impressive amid slowing rent growth.
Increases in payroll expenses were in line with wage growth in other private sector industries, averaging 2.4 percent.
The number of market-rent garden-style units per full-time employee increased for the third consecutive year to 44.3. The challenges of an ongoing labor shortage within the industry likely kept some communities understaffed throughout the year. Increased pressures on wages can be expected in 2018 and should be evident in next year’s survey results.
Once again, property taxes were responsible for the largest increase in expenses, up 5.3 percent year-over-year. The average property tax bill was $1,833 per unit and represented one-third of expenses. Fifteen years ago, property taxes comprised less than one-quarter of operating outlays. Contesting assessed values has become commonplace for many owners feeling the squeeze from skyrocketing taxes.
Across the U.S. rent and occupancy rates rose in the third quarter, although not at the same rate they were rising a few years back. From the Wall Street Journal:
Apartment rents rose 2.9% in the third quarter from a year earlier, up from 2.5% annual rent growth in the second quarter, according to real estate analytics firm RealPageInc. A strong economy with better wage growth helped boost demand for apartments. So did a weak home-sales market, as tight supply may have prompted more renters to put off buying.
“There definitely doesn’t seem to be the pressure to buy that was there a little bit earlier,” said Greg Willett, chief economist at RealPage.
The rental market has still slowed significantly from a few years ago, when rents grew by 5.2% in the third quarter of 2015. But Mr. Willet said that “an upward blip rather than a downward blip” shows at least that the slowdown isn’t accelerating.
The share of occupied apartments during the third quarter rose to 95.8% in the third quarter from 95.4% in the second quarter, according to RealPage.
Interestingly, one factor that might be contributing to the stronger than anticipated rental market is the tax cut passed last year:
Barbara Byrne Denham, a senior economist at Reis, attributed stabilization in the rental market to the tax bill that passed last December. That bill almost doubled the standard deduction for individual and joint filers, making it less advantageous for most homeowners to itemize and take the mortgage interest deduction.
Cities that were experiencing very strong rent growth just two or three years ago are now experiencing flat year-over-year growth and in some cases even year-over-year declines. Some of this shift can be attributed to red-hot construction volume, and some can be attributed to other factors like millennials (finally) moving into home ownership in significant numbers. From Bloomberg:
Tenants are gaining the upper hand in urban centers across the U.S. as new amenity-rich apartment buildings, constructed in response to big rent gains in previous years, are forced to fight for customers. Rents are softening most on the high end and within city limits, Terrazas said. Landlords also have been losing customers to homeownership as millennials strike out on their own, often moving to more affordable suburbs…
U.S. multifamily apartment construction for the past few years have been at levels not seen since the 1980s and rapid rent gains have also encouraged owners of single-family homes and condos to fill them with tenants. Projects opening now were conceived by developers a few years ago when rent gains in the U.S. were peaking at an annual gain of 6.6 percent, according to Zillow data.
The most expensive markets slowed first as new supply became available and tenants struggled to afford rapidly-rising lease rates. Rents in the San Francisco area jumped 19 percent in the year through July 2015. Now, they have been flat since last July. New York rents, which were up 7 percent in 2015, have been decelerating for a couple years, declining 0.4 percent in July.
The two largest metro areas in North Carolina are a part of the trend: