Some of the biggest names in the apartment industry reported significant improvement in their occupancies in rents in the first half of 2010. And in April, May, and June, things have gotten even better.

But the question is: How have those numbers improved without significant job growth? The answer doesn't lie in unemployement figures. Instead, companies are pointing to a new phenomenon, unbundling.

The Big Picture
While unemployment did fall from 10 percent down to 9.7 percent in May, much of that was fueled by the hiring of 411,000 temporary Census workers. Otherwise, unemployment levels have remained fairly stagnant.

“The job data has been spotty, which is not uncommon in a recession,” says Bryce Blair, chairman and CEO of Alexandria, Va.-based AvalonBay Communities. "Yet the past few months, we have seen a fairly dramatic uptick for the apartment sector."

Just look at some of the numbers reported by the apartment REITs at the recent NAREIT REIT Investor Week conference in Chicago. Cleveland-based Associated Estates saw its first increases in renewals and new leases in 18 months. In May, the company was more than 96 percent occupied. Highlands Ranch, Colo.-based UDR says market rents improve 4.3 percent since last year, which led to a recovery six to nine months sooner than it expected.

Meanwhile, Memphis-based Mid-America Apartment Communities saw average rents rise 4 percent over the past four months and new customer rents jump 5 percent. AvalonBay Communities saw its economic occupancy bump up to 96.6 percent. It attributes the increases to the improving economic environment and continuing problems in the for-sale market, the diminishing supply of new apartments, and, of course, unbundling.

After seeing new rents decline for months, Rochester, N.Y.-based Home Properties saw them fall only 0.2 percent in May and its renewals improved 40 basis points from April to May. “I think this is coming a little quicker than anyone expected,” says Home CEO Ed Pettinella.

Others agree. “I know everyone is surprised, as we are too, that things have gotten so good, so fast, without job growth,” says Thomas H. Lowder, CEO of Birmingham, Ala.-based Colonial Property Trust. “It’s adding some pricing strength that no one anticipated.”

The Disconnect
The improvement is there, but the reasons for it aren’t so obvious. That’s because jobs are the usual driver for improvement. But that growth obviously isn’t there this time. “You can’t get to the improving fundamentals by just chasing job growth,” Blair says. “Other factors are just as important. That’s what’s different here from past recessions."

In Chicago, the common explanation by the REITs was a phenomenon called “unbundling” (or "decoupling," depending on who you asked). The theory: Workers (many of those in their 20s) are confident in their jobs, so confident that they felt comfortable leaving their roommates, group homes, or parent’s basements and striking out on their own.

“The improvement in consumer confidence is part of unbundling,” Blair says. “People are thinking, ‘If I haven’t lost my job yet, I probably won’t.’”

Chicago-based Equity Residential’s surveys say that renters are moving out because of job change or transfer, they want to split from their roommates, or they just need more space. That means they’re usually looking for new apartments on their own. Mid-America CEO Eric Bolton sees this as well. “These people didn’t want to rent on their own,” he says. “But now they’re more apt to go out and rent on their own.” But ultimately things must improve for landlords to see rent continue to grow."

“How long can we continue to have this disconnect?,” agrees David Neithercut, CEO of Equity Residential. “Fundamentals are improving, but you don’t see it in the BLS [Bureau of Labor Statistics] numbers.”

EQR says this may because the apartment industry sees jobs created before the government does. But the industry still isn’t back to its pre-financial bust rent levels. “We have seen a pretty strong increase in asking rents and high occupancies, but we’re not back to the high-water mark,” Neithercut says.