The average U.S. apartment asking rent grew 0.4% in the first quarter of 2017, up to $1,315, and by 3.3% on a year-over-year (YOY) basis since the first quarter of 2016, according to Reis’1Q 2017 Apartment Sector Preliminary Trends Release. The research firm’s findings mark a significant deceleration in rent growth from the pace seen one year ago, when YOY rent growth exceeded 5%.
Effective rents, meanwhile, have grown 0.3% in the past quarter and 3.1% YOY. Reis’ Barbara Denham attributes the growing divide between asking and effective rents to the increasing use of concessions to attract and secure occupants.
Regarding vacancies, the national vacancy rate increased last quarter to 4.3% from 4.2%, with no YOY change. At the same time, new-supply construction has stood strong. Nationwide, inventory grew by 39,000 new units in 1Q 2017, the lowest new-supply rate since 1Q 2015, though Reis notes that the first quarter tends to be the slowest of the year. Occupancy growth capped out at 23,957 units, the lowest net absorption total since 2010.
Local Markets
On the local level, effective rents have declined since the last quarter in 23 of the 79 major metro markets examined in this report, while vacancies have increased in 39 of the 79.
New York City’s effective-rent rate has fallen 0.6% YOY, and 0.7% since last quarter, while San Francisco’s 0.4% rent increase since last quarter pairs with a 1.3% YOY drop. Metros that saw the highest effective-rent growth from last quarter include Ventura County, Calif. (2.5%); Colorado Springs, Colo. (1.8%); and Syracuse, N.Y. (1.6%).
Market conditions and their results vary widely across the country. As Denham notes on the national level, effective-rent declines can occur in flat markets when landlords attempt to boost occupancy by offering concessions, including free rent for a limited time.
Many markets’ occupancy rates have fallen behind their new-unit delivery rates. Metros with the highest vacancy-rate increases include Nashville, Tenn. (1.2%); and Charleston, S.C. (1.2%); whereas vacancy declined the most in Fairfield County, Conn. (-0.6%). On a YOY basis, vacancies increased in 33 of the 79 metros studied.
On a positive note, all but eight of these markets have recorded job growth, which should be reflected in a steady demand for new apartments, according to Denham. Any further vacancy growth or decline in effective rent will likely be tied to an oversupply of new construction.
