Preliminary Trends Announcement: National Apartment Market
Apartment Sector Trends
The apartment vacancy rate increased to 4.7% from 4.6% in the third quarter. It was 4.8% in the fourth quarter of 2018 and 4.6% at year-end 2017.
Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.5% in the fourth quarter. At $1,498 per unit (asking) and $1,426 per unit (effective), the average rents have increased 3.7% and 3.8%, respectively, from the fourth quarter of 2018. This was the lowest annual growth rate in more than two years.
Net absorption of 21,500 units was lower than the previous quarter’s absorption of 46,511 units. Likewise, construction was 30,159 units, lower than the 51,992 completions in the third quarter. With new completions of 176,565 units in 2019, overall apartment supply growth fell well short of the 2018 addition of 265,041 units. Likewise, net absorption of 177,599 units in 2019 fell short of the 2018 total of 235,786 units.
Apartment: National Vacancy & Rent Trends
Source: Moody’s Analytics REIS
Statistics by Metro
Far more metros saw a vacancy rate increase in the quarter: 35, up from 23 and 26 in the third and second quarters, respectively. Those with the highest vacancy rate increase include Fairfield County, Charlotte, Greensboro/Winston-Salem, New Haven, and Dallas. Metros that saw the biggest decline in vacancy include Fort Lauderdale, Jacksonville, Washington (DC), Oakland, and San Bernardino/ Riverside.
Rent growth was mixed: 14 metros saw an increase in effective rent of 1.0% or more, led by Charleston, Chattanooga, Tucson, Pittsburgh, and Phoenix – all of which had rent growth of 1.3% to 1.9% in the fourth quarter. However, four metros posted an effective rent decline in the quarter including Fairfield County, New Haven, Richmond, and Northern New Jersey.
At 4.0%, New York City saw no change in vacancy; New York’s average effective rent grew 0.4% to $3,599 per unit in the fourth quarter, up 3.7% over 2018.
At $3,153 per unit, San Francisco’s average effective rent is approaching New York City’s. San Francisco’s effective rent growth for the quarter was 0.5% and for the year was 4.4%. Metros that posted the highest effective rent growth for the year include Knoxville (+6.8%), Phoenix (+6.4%), Raleigh-Durham (+6.2%), Charlotte (+5.4%) and Colorado Springs (+5.4%). Markets with the weakest growth include New Haven (-0.1%), Little Rock (+0.8%), Wichita (+1.5%), Long Island (+1.6%) and Northern New Jersey (+1.6%).
Once again, the apartment statistics were consistent with employment growth for the year as Orlando, Dallas, San Francisco, Phoenix and Seattle led job growth with rates of 2.9% to 3.6%. Metros with the lowest growth include Minneapolis (-0.1%), Suburban Maryland, Tulsa, Dayton and Hartford that had growth rates of 0.1% to 0.3%.
Apartment occupancy growth slowed in the fourth quarter, although fundamentals remain healthy. That is, demand growth increased in line with supply growth, but rent growth was particularly disappointing at 0.5% in the quarter. The overall economy has improved in the last few months following a rough Summer when the trade war escalated, and the yield curve inverted. Given the recent settling of interest rates and a near closure of a “phase one” trade deal, the outlook for 2020 looks more promising than it has in more than a year. Demand for apartments should remain healthy, although it could face new competition from the housing market that could accelerate given the rosier economy and very low mortgage rates. As we have stated in previous reports, the housing vs. apartment markets are not a zero-sum game. As long as job growth remains healthy, the demand for both will stay positive shoring up home prices and rents equally.
Note: Preliminary trends are subject to revision.
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