RealPage® Reports Cooling in the U.S. Apartment Market Performance During the First Quarter’s Slow Leasing Period

The U.S. apartment market’s performance stumbled during the first quarter of 2018. Occupancy backtracked to 94.5 percent in March, down from 95 percent a year earlier, according to real estate technology and analytics firm RealPage, Inc. (NASDAQ: RP). Annual rent growth cooled to 2.3 percent, the slowest pace of increase since the third quarter of 2010.

"While some loss of apartment market performance momentum is normal when cold weather in much of the country discourages household mobility, the occupancy downturn in early 2018 is pronounced,” said RealPage chief economist Greg Willett. "With so much new supply coming on stream, even a short period of sluggish demand can do some real damage. It’s difficult to maintain pricing power in such a competitive leasing environment.”

Occupancy Still Is Reasonably Healthy

Today’s 94.5 percent occupancy rate represents a return to more normal conditions, after the apartment market was unusually tight in 2012-2017. Occupancy averaged 95 percent in that six-year period, peaking at 95.6 percent as of mid-2016. However, current occupancy matches the long-term average registered over the past 25 years.

Among the country’s bigger markets, Minneapolis-St. Paul stays atop the occupancy leaderboard, with 96.5 percent of the existing stock full as of March. Occupancy also reaches 96 percent or better across New York, Newark-Jersey City, Orlando and Sacramento.

Metros posting the strongest apartment occupancy tend to be areas where construction activity is muted. Thus, these markets do not suffer from the effect of large blocks of new supply moving through initial lease-up. Among markets ranking highest for occupancy, only Orlando added new supply during the past year at a pace pushing the inventory growth rate meaningfully above the national average.

Rent Growth Has Moderated

The current annual rent growth pace of 2.3 percent is a mild bump down from increases that had hovered between 2.6 percent and 2.9 percent throughout 2017. The market is now more than two and a half years past this economic cycle’s peak rent growth, which was a 5.3 percent annual price increase achieved in the third quarter of 2015.

Rents inched up a scant 0.3 percent specifically during the first quarter.

Nationally, monthly apartment rent averages $1,310.

The list of individual metros ranking as rent growth leaders now is shuffling a bit. With pricing up a little more than 6 percent annually, Las Vegas and Orlando are the best rent growth performers among the country’s big markets. Sacramento, which had been in the #1 spot since the middle of 2016, now takes the third position, registering 5.5 percent growth.

Houston, with rents up 4 percent on an annual basis, is the notable newcomer to the list of better performers. Houston’s apartment occupancy rate has climbed, reflecting much-improved job production and demand from households displaced from the single-family home sector by Hurricane Harvey flooding.

Austin, with rents down 0.7 percent year-over-year, is the one big market where apartment rents are dropping. Price increases are very shallow at no more than 1 percent across many other locations, including Chicago, Milwaukee, Nashville, Newark-Jersey City, Pittsburgh, Portland, Seattle, St. Louis and Washington, DC.

More New Supply Lies Ahead

"While demand was sluggish in the first quarter, robust job growth over the past few months points to the potential for new household formation and substantial apartment demand during the upcoming prime leasing season,” according to Willett.

However, near-term deliveries also will be aggressive, suggesting limited prospects for much upturn in occupancy and rent growth. The annual pace of completions across the country’s 150 largest metros moved above the 300,000-unit mark during the last half of 2017, and scheduled new supply keeps coming on stream at about the same annual rate through early 2019.

About RealPage

RealPage is a leading global provider of software and data analytics to the real estate industry. Clients use its platform to improve operating performance and increase capital returns. Founded in 1998 and headquartered in Richardson, Texas, RealPage currently serves nearly 12,500 clients worldwide from offices in North America, Europe and Asia. For more information about the company, visit http://www.realpage.com.

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