Apartment Demand Surges

U.S. apartment demand spiked during the second quarter as occupancy climbed to nearly 96 percent, said RealPage, Richardson, Texas.

Net move-ins totaling 155,515 units between April and June topped second quarter 2018 absorption by 11 percent, said RealPage Chief Economist Greg Willett,  a five-year high.

“Apartment leasing activity accelerates during the warmer weather months and demand is proving especially strong in this year’s primary leasing season,” Willett said. “Solid economic growth is encouraging new household formation and rentals are capturing a sizable share of the resulting housing demand. At the same time, loss of existing renters to home purchase remains limited relative to historical levels.”

Willett spoke July 10 at MBA’s CREF Market Intelligence Symposium in New York.

Victor Calanog, Chief Economist with Reis, New York, said apartment occupancy growth started accelerating in 2018 after slowing a bit in 2017. “At the same time, the housing market slumped in the latter half of 2018 after gaining some heat in 2017,” he said. “Thus far in 2019, existing home sales have fluctuated a bit, yet at higher levels than year-end 2018; apartment occupancy growth has once again been subdued.”

Calanog said the apartment market has weathered a relatively strong influx of new supply very well, though lease-up performance has not been as brisk as recent peak years. “However, with construction slowing as soon as later this year and throughout 2020 for many major markets, continuing robust demand for rentals will likely manifest in vacancy rates that stay well in the 4s, or at most, rise to the low 5s. What may complicate this story is if the economy runs into any kind of contraction in the next 18 months.”

Rents for new apartment leases increased 1.8 percent during the second quarter, RealPage reported. Rents are up 3 percent from year-ago levels, reaching a $1,390 per month average.

Looking ahead, Willett said most economists anticipate a slowdown in economic growth and cooling support for housing demand. “It would be tough to maintain price growth with so many new properties moving through initial lease-up at a time when demand has weakened,” he said.