According to data presented in Reis' Apartment Sector Preliminary Trends report, 13 metros recorded a decline in rent growth during the fourth quarter of 2016. Boston led the drop, with rents falling by 1.7%, while Washington, D.C.; San Jose, Calif.; and Austin, Texas, experienced rent declines of 0.9% each, followed by other tech markets, including Oakland, Calif., and San Francisco. Palm Beach, Fla., saw the highest rent growth in the last quarter, at 1.9%, followed by Salt Lake City and Sacramento, Calif., each at 1.6%.
Nationwide, rent growth slowed to 0.3% in the fourth quarter, the lowest quarterly result recorded by the New York City–based market research firm since 2009. (Reis economist Barbara Denham notes that 4Q growth rates are usually the lowest of the year.)
On a year-over-year basis, only New York City (-0.4%) and San Francisco (-1.5%) showed a slowdown in rent growth. (Denham attributes their drops to higher landlord concessions.) Meanwhile, the national average asking rent increased by 3.7% in 2016, while the effective-rent growth rate was 3.3%.
The national apartment vacancy rate has declined, Reis reports, to 4.1%, down from 4.2% at the end of the third quarter of 2016 and from 4.3% at the end of 2015. New York City’s vacancy rate increased by 0.1% last quarter and by 0.4% over the year. Fairfield County, Conn., saw the greatest vacancy increase of the 79 metros Reis surveyed, at 1.0%, followed by Miami, at 0.9%; Greenville, S.C., at 0.8%; and Syracuse, N.Y., at 0.5%. Denham notes that many of these metros were oversupplied, yet net absorption and rent growth were still positive. Columbia, S.C., saw the greatest decrease in vacancy, at -1.2%.
Net absorption fell to 44,583 units, the lowest number recorded since Q3 2014. New completions are slowing as well, Reis notes: Year-to-date completions are down to 195,734 from 210,272 in 2015, and last quarter’s 46,216 completions are the lowest recorded in the fourth quarter since 2012.
Denham says completions should rise to 205,800 units in 2017, fall to 147,430 in 2018, and further decline, to 76,500 units, in 2019. She doesn't believe vacancy rates will rise very high in the future, however: While the pace of completions has slowed, net absorption has remained stable, meaning the renter base is still growing.
According to the U.S. Census Bureau, the number of nonfamily renter households grew by 1.8% over the course of 2016, following 2.3% growth in 2015. Family renter households grew by 0.5% in 2016 and by 0.4% in 2015. In addition, metro job growth had grown by 2.1% in 2016 as of November, compared with nonmetro job growth of 1.1% over the same time frame. Denham says metro-level job growth should remain healthy and apartment demand consistent in the coming years.