National and local rent reports for the first quarter of 2011 are showing more good news for the multifamily real estate sector, with upticks in occupancy and continued gains in effective rents (rents net of concessions) in practically every major metro in the country.
According to a report from Dallas-based apartment research firm Axiometrics, effective rents grew 4.65 percent for the year ending February 2011, the largest such gain since the firm began tracking rent fundamentals in 1996. “I think we are going to see an even better year in 2011 than we saw in 2010,” says Axiomterics president Ron Johnsey. “We are starting to see job growth come back and a near lack of new supply entering the market.”
According to Axiometrics, national occupancy also moved upward, increasing to a national rate of 93.24 percent in February. That largely matches similar first quarter data reported by Carrollton, Texas-based RealPage’s MPF Research division, which clocked 2011 Q1 national occupancy at 93.6 percent, up 0.1 percentage point over the previous quarter and 0.8 percentage points higher than the previous year.
“I wasn’t expecting a whole lot to happen on the occupancy side this time, simply because half of last year’s total demand showed up in the first quarter,” says MPF vice president of research Greg Willett. “That’s a huge block of leases that are up for renewal, and operators had to concentrate on keeping those renters in place rather than putting effort into attracting new residents.”
Overall rent growth, which began an unanticipated surge in 2010, despite a lack of job and corresponding household creation, looks to continue at a trajectory that could push national apartment rents to historic highs by the end of the year. According to MPF, rent pricing increased 1.1 percent in the first quarter, taking the rise for the 12 months ending in March to 3.3 percent. The firm has forecast a 5.5 percent growth for 2011. “The telling story for the first quarter is really what happened on the rent number,” Willett says. “We were going to have to get some pretty decent growth this quarter if we were going to meet these high expectations for the year in total, and we actually did it. I think by the 3rd quarter of this year, we will have made up the hole that was dug during the recession: We are back to 2007 numbers, and moving forward from there we are reaching new highs.”
Still, rent growth could slow in luxury Class A properties, especially if inflation continues unabated. “If you look at the rising cost of food, the rising cost of gasoline, and combine that with rising rents, you are likely to see movement into the B Class assets,” Johnsey says. “We expect that sector to firm up and be really strong in 2011 and 2012 as inflation moves renters out of the As.”
Sticker shock seems as yet to have unaffected renewals, however. Willett noted anecdotally that renters who had fueled the early 2010 occupancy surge displayed little reticence to renew in the first quarter of 2011. “Again, its more good news for the apartment sector,” he says.
Notable markets in terms of effective rent growth mentioned by both research firms include San Jose, Calif. (Axiometrics: 10.51 percent; MPF: 7.8 percent); Portland, Ore. (Axiometrics: 10.43 percent; MPF: 5.7 percent); Oakland, Calif. (Axiometrics: 7.75 percent; MPF: 5.4 percent); and Washington D.C. (Axiometrics: 7.45 percent; MPF: 5.3 percent). Both firms also noted recent job growth improvements in Southern California and a strengthening of the Phoenix rental market, while acknowledging that market struggles remain in the Las Vegas metro.
“Still, when you’ve only got one market in the entire country that is underperforming, it speaks pretty well for business conditions for the nation as a whole,” Willett says.