Apartment Preliminary Trends, Q1 2019

Preliminary Trends Announcement: National Apartment Market


Apartment Sector Trends

The apartment vacancy rate was flat in the quarter at 4.8%. In the first quarter of 2018 it was 4.7%, while at the start of 2017 it was 4.3%.

Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.5% in the first quarter. At $1,451 per unit (asking) and $1,380 per unit (effective), the average rents have increased 4.4% and 4.2%, respectively, since last year.

Net absorption was 37,159 units, lower than the previous quarter’s absorption of 49,558 units. Though the first quarter tends to see the lowest activity, this quarter was weaker than most first quarters. Likewise, construction was 33,276 units, far lower than the 61,097 completions in the fourth quarter. While we expect some revisions to these numbers, we were surprised by the low levels. This year is expected to add more apartment units than last year in which 254,000 units were added.


Apartment: National Vacancy & Rent Trends 

Source: Reis, Real Estate Solutions by Moody’s Analytics


Statistics by Metro

Far fewer metros saw a vacancy rate increase in the quarter: 15, down from 40 last quarter. Most of the increases were due to high construction that exceeded net absorption. Metros with the highest vacancy rate increase were Charleston, Columbia, Orlando, Denver, and Austin, most of which also had strong job growth. Metros that saw the biggest decline in vacancy saw little to no new construction, namely, Palm Beach, Tulsa, Chattanooga, Little Rock, and Greenville.

Rent growth was more subdued in the quarter as only eight metros saw an increase in effective rent of 1.0% or more, led by Chicago, Colorado Springs, Tucson, Louisville and Milwaukee that saw effective rent growth of 1.2% to 1.6%. Eight metros posted an effective rent decline in the quarter including Nashville, Portland, Chattanooga, Norfolk, and Northern NJ. Nashville and Portland had seen some of the strongest rent growth over the prior two years along with significant construction.

New York City saw strong net absorption led by Brooklyn with 516 units absorbed and Queens with 306 units. These two boroughs captured 70% of the total absorption for New York in the quarter, but they have also seen disproportionately more construction. The vacancy rate in New York fell 0.3% to 4.2%; the average effective rent grew 0.4% to $3,558 per unit.

At $3,018 per unit, San Francisco now joins New York City in the 3K per-unit club. San Francisco’s effective rent growth for the quarter was 0.5% and for the year was 2.2%, ranking it in the bottom ten. Metros that posted the highest effective rent growth for the year include Las Vegas, (7.7%), Phoenix (7.5%), Charlotte (6.5%), Atlanta (6.3%) and Milwaukee (6.3%). Markets with the weakest growth include Lexington (0.3%), Fairfield County (0.8%), New Haven (1.8%), Tulsa (1.8%) and Syracuse (1.9%). These rent growth rankings are very consistent with employment growth rankings.



Apartment occupancy growth had accelerated in 2018 after slowing a bit in 2017. At the same time, the housing market slumped in 2018 after gaining momentum in 2017. Recently, existing home sales jumped yet apartment occupancy growth was subdued. We had attributed the acceleration in the apartment market in 2018 to the tax cut at the end of 2017 that reduced the incentive to buy a home. Many have cited the drop in mortgage rates to the housing market jump in February.

A closer look at the numbers shows that the condo and coop sales were flat in the first two months of 2019 after falling in 2018. This is consistent with our apartment occupancy numbers and suggests that the housing market uptick was concentrated in less urban areas that do not compete as much with strong apartment construction. There are a number of factors impacting housing, but it is too early to say if the apartment market will suffer if the housing market has strengthened. The preliminary housing numbers from the National Association of Realtors are subject to change.

We still expect construction to remain robust in 2019 before completions decelerate in 2020. Occupancy should stay consistent with both supply growth and job growth, but the pent-up demand for buying a home could impact some markets more than others.


Note: Preliminary trends are subject to revision.
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