How Has Apartment Performance in the Current Cycle Stacked Up to Prior Years?

Sometimes, multifamily real estate can feel, in the words of the Talking Heads, “same as it ever was.” Significant changes are more the exception than the rule, and sometimes it truly does feel like that iconic “Once in a Lifetime” song lyric. While change may feel slow, there ultimately are dynamics at work that affect performance.

Maintaining that line of thought, how has the current cycle stacked up to prior years? Examining historical performance can provide valuable insights.

The chart below compares average annual rent growth and average occupancy in the current cycle (from 2010 to 1st quarter 2018) to pre-cycle performance (from 1998 through 2009). The difference between these numbers in the two time periods is expressed in basis points in the scatterplot below.

A clear trend emerges in the busy dataset. In the current cycle, most markets have outperformed their historical averages. In fact, 32 of the 50 major markets examined have performed better in terms of both rent growth and occupancy in this cycle than in the pre-cycle period.

Meanwhile, 10 markets have averaged higher rent growth levels but lower occupancy, represented in the upper left quadrant. Only New York (in the lower right quadrant) has seen higher occupancy but lower rent growth levels.

Seven markets have current cycle rent growth and occupancy levels trailing pre-cycle performance, as indicated in the lower left quadrant.

This chart goes a long way to show that the current cycle has been fruitful, as most markets have outperformed pre-cycle norms, both in terms of rent growth and occupancy. Only a handful have lagged historic levels.

Trimming this market list down to essentially a top 20 market list provides a less cluttered view, but a similar trend.

Only Washington, DC – a market that has struggled to gain meaningful traction while facing a seemingly-endless onslaught of new supply – has had notably weaker occupancy and rent growth this cycle relative to pre-cycle performance.

Southern California markets are the only others in this 20-market list that have trailed both in terms of rent growth and occupancy. But the departure from their pre-cycle norms is minimal, so current performance is essentially in line with pre-cycle levels.

Atlanta has shown the ability to outperform pre-cycle levels in terms of rent growth this cycle. However, occupancy has failed to gain positive traction, likely due to the sheer volume of new supply delivering in this market.

Finally, some of the highest achieving markets such as Denver and Charlotte have excelled in terms of rent growth this cycle compared to their pre-cycle norms. Some of the outperformance in Denver and Charlotte is due to the fact that both markets have benefited from their increasing economic clout in recent years.

The remaining markets in that upper right quadrant may show similar stories. Dallas, Orlando, and Seattle have shown impressive economic engines in recent years. Different stories are present in some other markets, such as Phoenix, which benefitted from its late-recovery from the previous recession.

In summary, the fact is that many of the nation’s largest markets have outperformed historic norms – by a substantial level, in many cases. It is ultimately a testament to the strong demand for multifamily housing this cycle – a trend expected to continue for the foreseeable future as structural economic and demographic drivers remain strong.