U.S. Apartment Market Sends Mixed Signals in April

Is your glass half full or half empty? That perspective makes a big difference in how you view U.S. apartment market performance metrics for the month of April, since performance results were mixed.

The Stock Is Full

Survey results for 9.1 million apartment units across the country show April’s occupancy rate at an average of 95.4%, drifting down a mild 20 basis points (bps) from the March result to a level that matches the performance from April 2019.

The more telling comparison point may be to go all the way back to the occupancy figure from mid-2008. What does current occupancy look like relative to the performance posted at the beginning of the Great Recession of late 2008 and calendar 2009? Viewed from that perspective, April’s occupancy of 95.4% is terrific, coming in 160 basis points over the mid-2008 reading. That occupancy premium provides some cushion for the decline that’s to come. Furthermore, it may help landlords limit the magnitude of near-term rent cuts, at least to some degree.

With so many households staying at home, strong resident retention for expiring leases is helping boost occupancy. About 53% of apartment renters chose to stay in place at lease expiration in 2019 and early 2020, and that figure inched higher in recent weeks. Furthermore, some who had informed their apartment operators of intentions to leave later rescinded those move-out notices, either signing short-term leases until today’s health crisis becomes more manageable or leasing on a month-to-month basis.

Limited apartment completions in April also helped boost the overall occupancy rate, as new product delivery has been delayed at so many properties.

Renters Are Paying (For the Moment)

While it’s good to have full apartments, it’s obviously better to have those units occupied by people who are paying their rent. The National Multifamily Housing Council’s Rent Payment Tracker – an industry research effort RealPage is pleased to contribute data to – showed that 91.5% of the residents of properties under professional management paid their rent for the month of April. That’s about 4 percentage points under the year-ago level, but it’s a much better result than many anticipated given the size of recent job cuts.

Relief about April’s payment results didn’t extend across every market, however. Key potential trouble spots to keep an eye on include New Orleans, New York, Los Angeles and Las Vegas.

Asking Effective Rents Are Losing Momentum

Asking effective rents – what you’ll see if you do an internet search for pricing or hear if you reach out to a property and ask for today’s rates – are off a little from last month’s figures, but still up from year-ago levels. RealPage’s survey of asking effective rates shows April 2020 rents down 1.0% on a monthly basis, while change is still positive by 1.0% relative to April 2019 prices.

Phoenix, which had been experiencing annual rent growth near the 8% mark, still is in the top spot among big markets, although the pace of increase in asking effective rents has slowed to 3.8%. Annual increase in asking effective rents is at 3.0% to 3.5% in Cincinnati and Nashville.

Another 10 big metros record an annual bump in asking effective rents of at least 2.0%. Those spots are Memphis, Philadelphia, Indianapolis, Virginia Beach, Seattle, St. Louis, Kansas City, Sacramento, Detroit and Riverside/San Bernardino.

On the other end of the spectrum, there are annual cuts in asking effective rents in 11 metros. The biggest loss – a change of -1.6% – is in San Francisco. Asking effective prices are down 0.1% to 0.9% across Orlando, Los Angeles, San Jose, Denver, Oakland, Houston, San Antonio, Atlanta, Fort Lauderdale and Providence.

Rents in Executed Leases Are Off Even More

While those shifts in asking effective rents are informative, the more telling story is what’s happening in the rents achieved in executed leases. There’s a meaningful disconnect in the two figures, as the drop in pricing power for executed leases goes deeper than the decline in asking effective rents.

In contrast to the 1.0% annual increase registering for asking effective rents, executed new-resident lease prices were down 4.5% from year-earlier levels as of the last week in April.

Looking at top achiever Phoenix as a specific metro example, annual rent growth isn’t really near the 4% rate reported in asking effective rents. Instead, it’s just barely positive at an annual increase of 0.5% as of the last week in April for leases actually executed for new residents.

Some spots reporting rent growth in the asking effective rent data series actually show price cuts in the executed lease pricing series. Instead of the top 10 performance of 2.5% annual rent growth shown for asking effective rents in Seattle, executed lease prices as of late April were off 8.7% (improving from an annual drop of around 12% seen in the middle of the month).

Sizable price reductions in the West region markets are what’s really taking down rent production in the nation as a whole, as significantly negative figures also register in the Bay Area metros, most of Southern California and Portland.

What Does It All Mean?

There are good things to say about April’s apartment performance metrics. Continued tight occupancy is encouraging, and rent payment levels from the existing resident base exceed the expectations that many of us had.

Still, the overall message has to be that we’re likely in for a rough prime leasing season. While leasing velocity late in the month showed some momentum from the dismal results recorded in late March and early April, it’s probably wise to expect that near-term absorption could come in at level barely more than half of last year’s volume.

Furthermore, while the declines in asking effective rents are modest, most leases are being signed at levels below what those quoted rents would suggest. Performance hasn’t gone off the edge of the cliff, but it is notably weakened for now.