RealPage: ‘Robust’ Apartment Demand While Rent Growth Cools Slightly

Last year saw near-record multifamily demand and strong occupancy despite rising completions, reported RealPage, Richardson, Texas. But rent growth is starting to slow.

“The apartment sector’s winning streak has run seven full years so far,” RealPage Chief Economist Greg Willett said. “Job production continues at solid levels, encouraging new household formation.” 

Willett noted “substantial” apartment construction, “[but] significant building is justified by the very strong demand tallies,” he said. RealPage reported demand for 328,559 apartments last year across the country’s 100 largest metros, up 24 percent from 2015’s net move-in total.

The 2016 demand figure represented the third-largest calendar year volume in the past three decades, just behind 2000 and 2010, RealPage reported. Year-end 2016 apartment occupancy stood at 96.3 percent, up from 95.9 percent in late 2015.

Following normal seasonal patterns, occupancy cooled a bit on a quarterly basis, dipping from 96.5 percent as of September, RealPage reported.

“Almost all of today’s vacancies in most locales are found in the very expensive brand new completions moving through initial lease-up,” Willett said. “It can be very tough to find available units in the middle-tier to lower-end price ranges.”

Rent growth continues to cool from an annual pace that topped out at more than 5 percent in 2015, but 2016’s 3.8 percent typical price increase remains well above the long-term historical norm, Willett said. He noted that rents have increased a “whopping” 26.3 percent over the current apartment market cycle’s seven years.

“Rent growth doesn’t have to reach best-ever readings to be strong,” Willett said. “Somewhat smaller price increases certainly were anticipated as the volume of new construction kicked into higher gear.”

Rent growth shrank 0.5 percent on a quarterly basis in late 2016, but that is typical, Willett noted. “It’s unusual for rents to shift much during the seasonally slow leasing period,” he said. “Other than in brand new properties renting for the first time, only a few leases are signed in the cold weather months.”

Monthly apartment rents now average $1,248 nationally, RealPage reported.

New supply coming online in 2017 could top 2016’s total by more than 25 percent, Willett noted. “That big bump in deliveries points to more competitive leasing conditions, especially for top-tier properties in the urban core, where building is heavy by historical standards,” he said.

But Willett noted that labor shortages and other factors have held completions in this market cycle 10 percent to 15 percent below expected volume. “If that same pattern holds true moving ahead, 2017’s deliveries could line up almost exactly with the demand total posted over the past year, suggesting that concerns about market softening could be overblown,” he said.