Apartment Preliminary Trends, Q2 2019

Preliminary Trends Announcement: National Apartment Market


Apartment Sector Trends

The apartment vacancy rate was flat in the quarter at 4.7 %. After climbing from a low of 4.1% in Q3 2016, the vacancy rate has remained near 4.7% since Q1 2018.

The national average asking rent increased 1.2% in the quarter while effective rent, which nets out landlord concessions, increased 1.3%. At $1,471 per unit (asking) and $1,400 per unit (effective), the average rents both increased 4.3%, at an annual rate.

Net absorption was 36,052 units, lower than last quarter’s figure of 46,175 units. Construction was 38,693 units, also lower than the 40,965 completions in the first quarter. Though the first quarter tends to see the lowest activity, net absorption and completions were ever weaker this quarter. While we expect some revisions to the numbers, the low levels are still surprising. The apartment market is expected to add more units than last year’s 261,000 units.


Apartment: National Vacancy & Rent Trends 

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


Statistics by Metro

The statistics show that 26 metros saw an increase in vacancy in the quarter. Though both figures were weak, new completions in the quarter still exceeded net absorption leading to the uptick in vacancies in those metros with heavy construction. Metros with highest vacancy rate increase include Syracuse, Chattanooga, Buffalo, District of Columbia and Greenville. All of these metros, however, posted positive effective rent growth. In fact, no metro posted negative rent growth and only New Haven and Long Island were flat in the quarter. Other metros that saw weaker rent growth this quarter include Cleveland (+0.3%), Central New Jersey (+0.3%) and Little Rock (+0.5%).

Metros that saw the biggest decline in vacancy this quarter include Wichita, Lexington, Norfolk/Hampton Roads, Omaha, and Fairfield County. Barring Wichita, those metros each saw effective rent growth higher than 1.0% in the quarter. Of the primary 79 metros that Reis tracks, 62 of them saw an increase in effective rent of 1.0% or more, led by Denver, Portland, Raleigh-Durham, Syracuse, and Fort Lauderdale – all of which posted effective rent greater than 2.0%. Thus, rent growth has been robust in the second quarter.

New York City saw vacancy rise to 4.5% from 4.2% last quarter. Meanwhile, the average effective rent grew by a robust 1.7% to $3,602 per unit, ranking the metro 11th highest for quarterly growth. This is the strongest quarterly rent growth figure for New York City since the third quarter of 2015, despite relatively low numbers of new completions in the first half of 2019.

Metros that posted the highest effective rent growth for the year include Denver, (+7.1%), Las Vegas (+7.0%), Phoenix (+6.9%), Charlotte (+6.6%) and Albuquerque (+6.5%). Markets with the weakest growth include New Haven (+0.1%), Fairfield County (+0.6%), Long Island (+1.7%), Central New Jersey (+1.9%) and Little Rock (+2.2%). These rent growth rankings are consistent with employment growth rankings. Most metros with strong rent growth added jobs at a faster rate than the metro average, while other metros with low rent growth added jobs at a slower growth rate.


Apartment occupancy growth had accelerated 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. 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.

Despite having vacancies rise from 4.1% in the middle of 2016 to its current 4.7%, the apartment market has weathered the relatively strong influx of new supply very well. Performance has not been as brisk as recent peak years of 2014 (for lease-up velocity, when new buildings were achieving stabilization to market occupancy in 3 to 6 months – today it is closer to 9 to 15 months) and 2015 (for rent growth, which peaked at 5.8% for asking rents and 5.7% for effective rents). 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.


Note: Preliminary trends are subject to revision.
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