Apartment Completions Set to Surge; Occupancy, Rent Growth Could Cool

The U.S. apartment stock grew more than two million units during the past decade, and completions will likely climb further as the 2020s continue, said RealPage, Richardson, Texas.

“Developers have struggled to produce enough new housing to meet demand in recent years,” said RealPage Chief Economist Greg Willett. “However, the volume of apartments on the way in 2020 certainly could test the market’s ability to absorb a big block of additional units in a short time frame.”

Willett said 2020 deliveries could jump 50 percent from last year’s total of 246,779 units to more than 370,000 units.

“The big jump in deliveries during 2020 means it’s likely that occupancy will slip a little from 2019’s record level,” Willett said. “Pricing concessions, including periods of free rent, should be common at the new properties building an initial base of residents. Rent growth should slow for existing luxury projects in neighborhoods where construction is heaviest.”

The apartment market has not seen significant softening yet. Yardi Matrix, Santa Barbara, Calif., noted year-over-year apartment rent growth remained steady at 3.0 percent in January. But the average U.S. apartment rent fell $1 during the month to $1,463, marking the third consecutive month of declining rents.

Yardi Matrix attributed the slight month-over-month decline in rents to seasonality and said the trend could continue for the next few months. Occupancy dipped to 94.8 percent.

Yardi Matrix’s Multifamily National Report reported the year is off to a “steady start,” with 16 of the top 30 markets posting year-over-year rent growth above the national average and no markets displaying negative year-over-year rent growth. Phoenix, Las Vegas and Sacramento saw the highest rent growth at 7.4 percent, 5.4 percent and 5.1 percent, respectively.

“We expect the strongest growth to continue in the western and Southwestern markets in 2020,” Yardi Matrix said. Despite the coronavirus scare, which has upset the markets, the economy is experiencing “slow but steady growth,” Yardi Matrix noted. “The slowing economy has had little effect on multifamily, but one potential headwind to keep in mind for 2020 is regulatory risk, as evidenced by statewide rent control (in California, New York and Oregon) and increased local regulation on security deposits (Cincinnati) and resident acceptance criteria (Seattle),” the report said. “However, this risk does not present an insurmountable barrier nationally.”