Analysts Expect Rent Growth to Slow in 2019

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.

Wall Street Journal: It’s a Great Time to Rent (In Major Metros)

An article in the Wall Street Journal might come as a surprise to those of us who have been addressing the issue of housing affordability. The article cites the following:

It is a great time for anyone looking to rent an apartment: vacancy rates are rising and there are little or no rent increases in many major cities.

For landlords, though, the U.S. apartment market suffered its worst spring since 2010, near the depths of the housing crisis. Driving this dynamic is a flood of new apartments and weakening demand.

Rents rose 2.3% in the second quarter compared with a year earlier, the smallest annual increase since the third quarter of 2010, according to data from RealPage Inc. scheduled to be released on Wednesday. Rental growth was flat in major cities with otherwise strong economies—such as Austin, Portland, Seattle, Dallas and Washington, D.C.—due to large amounts of new supply…

Landlords have enjoyed a record 32 straight quarters of annual rent growth on average, as the U.S. economy strengthened and millennials delayed homeownership. But the reports of slowing, which began in a few markets in late 2016, have intensified to the point that the balance is shifting towards renters and away from landlords…

Data released Tuesday from another apartment data provider, Reis Inc. also showed a largely weak rental market across the country in the second quarter. The national vacancy rate ticked up to 4.8% from 4.3% in the second quarter of 2017. The number of additional units that were rented fell to just over 37,000 from nearly 53,000 a year earlier, suggesting demand was weaker.

But it’s not all doom and gloom:

Despite the recent slowdown, apartment owners note that the market is far from crashing and rent growth remains just below historic norms.

Little concern has arisen that the softening could have broader economic repercussions for the U.S. financial system.

Here in the Triad we’ve not had the same level of new construction compared to the major metro areas so we don’t expect to see too much of a softening in terms of rent or vacancy. Time will tell, of course, but this might be one of those times when being the tortoise in the race is a good thing.

Apartment List Data: Winston-Salem Had Fastest Nationwide Median Rent Growth Last Month

According to data released by Apartment List, median rents (July,2017) in Winston-Salem and Greensboro were among the lowest in the 100 largest US metro areas, but they are growing. Winston-Salem came in at the 94th slot, with median 1BR rents of $640 and 2BR rents of $780. Greensboro came in at the 85th slot, with median 1BR rents of $710 and 2BR rents of $840.

Source: Apartment List

While the rents are low in the Triad, Winston-Salem’s rent growth is actually among the strongest in the country. Median rents there grew 1.8% from June to July (1st in the country), and 4.6% from July, 2016 to July, 2017 (26th in the country). Greensboro’s rent grew 0.5% from June to July (50th in the country), and 3.3% from

Greensboro’s rent growth wasn’t as spectacular as its neighbor to the west, but 0.5% from June to July (50th in the country), and 3.3% from July, 2016 to July, 2017 (43rd in the country) still beats a stick in the eye.

You can read the full report here.

 

Nationwide Rents and Vacancies Were Up in 2nd Quarter

The news was mixed nationwide for the apartment industry. From the Wall Street Journal:

The national vacancy rate climbed to 4.4% for the quarter from 4.2% a year earlier, according to data released by Reis Inc. Nonetheless, average rents across the U.S. increased 3% year-over-year in the second quarter to $1,335 a month. That was the smallest year-over-year increase since 2011.

Rents increased or remained flat in all but two of 79 metro areas. That is in contrast to the first quarter, when rents declined in 23 metro areas…

Landlords got a boost from weaker-than-expected deliveries of new apartment units, which might postpone more pain until later this year. Roughly 36,500 units were built during the second quarter, down almost 37% from a year earlier, as labor shortages took a toll on construction. Those units might end up hitting the market later this year, putting additional pressure on landlords.

Rent Increases Cool Off

From The Wall Street Journal:

Increases in apartment rents slowed this spring, typically the period when landlords drive the hardest bargains, suggesting the once-booming market is beginning to cool.

Rents increased by 4% in the second quarter over the same time last year, according to real-estate researcher Reis Inc. That was less than the 5% year-over-year growth in the fourth quarter of last year, which marked the biggest jump in rents since the dot-com boom in the early 2000s.

Another research firm, Axiometrics Inc., showed an even sharper slowdown in year-over-year rent growth, to 3.7% in the second quarter from 5.1% in the same period last year.

But, rents are still rising faster than historical averages:

While overall rent growth is cooling and some developers are struggling to get the rents they anticipated, the market remains historically strong. Rents are still rising well above the long-term average of about 3% a year…

More than 127,000 new apartments were filled in the second quarter, easily exceeding the 67,550 units that were built during the period, according to MPF.

Building Boom: Investors Still Bullish on Apartments

From the Wall Street Journal:

After six years of rising apartment rents in U.S. cities, investors from all corners of the real-estate industry are piling into new projects in a bet the boom still has a long way to run.

Over the next three years, developers are expected to build almost 1 million apartments in the U.S., more than the nearly 900,000 constructed over the previous three, according to researcher Axiometrics Inc.

In 2014, multifamily rental construction reached 328,000 units, its highest in nearly 30 years, according to an analysis of U.S. Census data by Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley.

The main lure for investors: rising rents. Average rents nationwide rose 4.6% in 2015, the biggest gain since before the recession, according to real-estate researcher Reis Inc. Rents have increased by more than 20% since the beginning of 2010. Most economists expect 2016 to be another strong year. The average monthly U.S. apartment rent now stands at nearly $1,180, up from about $1,125 a year ago, according to Reis.

Yep, rents are up across the US, but the Triad is still affordable by comparison. According to Real Data’s latest report, average rent in the Triad was $760 in Sep, 2015 which was up from $728 a year earlier. Same could be said for comparing development in the Triad to the rest of the country: the Triad is definitely seeing some apartments built, but not at the same rate as many of the major metro areas.

Axiometrics Report: 2014 Was Banner Year for Apartments in US

Axiometrics is reporting that, nationally, 2014 ended strong for the apartment industry:

From Axiometrics Jan ’15 Newsletter

National annual effective rent growth in December 2014 reached 4.9%, the strongest monthly rate of 2014 (and even 2013 and 2012). The last time rent growth was this high was the 5.0% of August 2011. The rate has increased for 10 straight months and was higher than the previous month’s level for 11 of 12 months during 2014.

The December 2014 rate was 219 basis points (bps) higher than the 2.7% of December 2013. It was also a 21-bps increase from November’s 4.7%, which is interesting because the end of the year is usually when rents begin to decelerate because of seasonality. We just didn’t see that happen this year. 

And the national occupancy rate was strong as well:

Occupancy was 94.6% in December, compared with 94.8% in November and 94.2% in December 2013. Although occupancy is down slightly from the 95% seen in mid-2014, it did not drop below 94% during 2014, and has not gone below that mark since March 2012. Also, the December 2014 occupancy rate is the highest reported in any December since Axiometrics began tracking monthly in 2008.

The ability of existing units to maintain occupancy rates at this level, even with the amount of new supply, definitely demonstrates how much demand there is for apartments. Developers and landlords can thank expanding job growth for this trend.