Big pricing increases in middle-market properties keep average rent growth above 4 percent.
RICHARDSON, Texas (September 30, 2016) – U.S. rental apartment occupancy reached 96.5 percent in the third quarter of 2016, according to the market intelligence division of rental housing technology firm RealPage, Inc. (NASDAQ: RP) Up from 96.2 percent a year ago, today’s occupancy reading is just shy of the all-time peak of 96.8 percent set in the tech boom period of 2000.
“Many properties, especially communities at the middle-tier price point, are completely full,” according to RealPage chief economist Greg Willett. “While an upturn in high-end deliveries is yielding more product availability in select spots, most new projects are moving quickly through the initial lease-up process.”
Demand Remains Robust, Tops Completions
Demand for 109,600 units in the third quarter well surpassed the 77,974 units in properties finishing construction, even though that completion volume was the biggest block of quarterly new supply delivered in this economic cycle. Demand realized over the past year totals 276,485 units, moderately ahead of the 261,345 units built in the same time frame.
“Retention of current renters remains a big factor in the favorable balance between demand and supply in the apartment sector,” according to Willett. “With loss of renters to home purchase holding below the historical norm, the limited churn of residents is helping keep the occupied apartment count high.”
Rents Continue to Climb
Typical rents for new residents rose another 1.5 percent during the third quarter. The price increase posted over the past year registers at 4.1 percent. Monthly rents for new-resident leases now average a record $1,292.
Average annual rent growth has slowed from this economic cycle’s peak growth of 5.6 percent, seen in the third quarter of 2015. However, today’s annual rent growth pace is still very substantial compared to the long-term historical norm that runs just under 3 percent. The Class B sector’s middle-tier quality units are playing the biggest role in driving overall rent growth, as pricing in that product sector is up 4.9 percent year-over-year.
“With such big pricing differences seen between most new projects and typical existing units, additional construction isn’t impacting middle-market rent growth to the degree seen in past cycles,” Willett said.
Among individual large apartment market metros, Sacramento ranks as the country’s rent growth leader, holding that position for a second consecutive quarter. Pricing for new-resident leases in Sacramento climbed 11.6 percent during the past year.
The following list shows current top-performing metros for annual rent growth.
| Leaders in Annual Rent Growth for New Residents Year Ending in the Third Quarter 2016 |
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| Rank | Metro | Rent Growth |
| 1 | Sacramento, Calif. | 11.6% |
| 2 | Riverside-San Bernardino, CA | 9.6% |
| 3 | Seattle-Tacoma, WA | 8.5% |
| 4 | Portland, OR | 8.3% |
| 5 | Fort Worth, TX | 7.7% |
| 6 | Nashville, TN | 7.3% |
| 7 | Phoenix, AZ | 7.2% |
| 8 (tie) | Dallas, TX | 6.7% |
| 8 (tie) | Los Angeles, CA | 6.7% |
| 10 | Orange County, CA | 6.6% |
| 11 (tie) | Atlanta, GA | 6.5% |
| 11 (tie) | Las Vegas, NV | 6.5% |
| 11 (tie) | Salt Lake City, UT | 6.5% |
| 14 | Tampa-St. Petersburg, FL | 6.1% |
(Based on apartment market data from MPF Research)
Deliveries Haven’t Yet Peaked
A recent slowdown in the number of multifamily housing units authorized by building permits suggests that the apartment construction volume should soon cool slightly. For now, however, ongoing building remains in line with the very high levels posted over the past year or two. Properties totaling 555,121 units are under construction across the country’s 100 largest metros. The annual pace of completions now looks like it will peak around the middle of 2017.
Among individual large metros, Nashville registers the most aggressive building pace relative to its existing product inventory. Ongoing construction of 15,627 units will grow Nashville’s stock by 11.9 percent. At the next tier of activity, inventory growth in the range of 7 to 8 percent is on the way in Dallas, Charlotte and Austin.
The Outlook Remains Positive
“Most metros, with lots of new apartments now under construction, have very tight occupancy rates and are recording very strong rent growth,” Willett said. “There’s room for performances to slow a little from current levels and still stay very healthy in the big picture. “
About RealPage®
RealPage, Inc. (NASDAQ: RP) is a leading provider of comprehensive property management software solutions for the multifamily, commercial, single-family and vacation rental housing industries. These solutions help property owners increase efficiency, decrease expenses, enhance the resident experience and generate more revenue. Using its innovative SaaS platform, RealPage’s on-demand software enables easy system integration and streamlines online property management. Its product line covers the full spectrum of property management, leasing and marketing, asset optimization and resident services solutions. Founded in 1998 and headquartered in Richardson, Texas, RealPage currently serves over 12,000 clients worldwide from offices in North America, Europe and Asia. For more information about the company, visit RealPage.com.