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Despite some ominous clouds, a new report from Carrollton, Texas–based MPF Research paints a sunny picture of the apartment market.

In the report, MPF said demand for apartments surged during the second quarter of 2016, gaining momentum after a slow start to the year. The occupied apartment count across the nation’s 100 largest metros increased by 127,402 units in the second quarter.

This is one of the biggest quarterly demand totals posted in recent years, topping 2015’s second-quarter demand volume by 23%, according to MPF. Apartment demand from April to June well surpassed completions totaling 67,550 units.

“Any concerns that the market couldn’t handle this year’s increase in apartment deliveries appear unfounded for the moment,” said RealPage chief economist Greg Willett in a press release. “As we’ve hit prime leasing season, the greater product availability—brought by sizable new supply—is revealing bigger product demand capacity. Initial lease-up for most new additions is registering at a very healthy pace, and we’re managing to squeeze a few more residents into an existing stock that’s been essentially full for quite a while.”

Occupancy Tops 96%

Apartment occupancy regained lost ground in the second quarter, inching up to 96.2%. Current occupancy matches this economic cycle’s previous peak, seen in the third quarter of last year. The only time occupancy has been tighter was at the height of the tech boom in 2000 and early 2001.

“Occupancy remains stronger than the norm during past periods of substantial construction,” Willett said. “The fact that few young adults are opting for home purchases right now is helping the occupancy performance. Economic growth is bringing new renters in through the front door. At the same time, the number of existing residents exiting out the back for other housing options is limited.”

As occupancy rose, typical rents for new residents climbed another 1.8% during the second quarter. Monthly rents for new resident leases now average $1,282.

Influenced by the increased volume of new supply that apartment owners and operators have in the initial leasing stage, average annual rent growth has slowed modestly from this economic cycle’s peak growth of 5.6%, seen in the third quarter of 2015. However, today’s annual rent growth pace is still very substantial compared with the long-term historical norm, which runs just under 3%.

“Annual rent growth in the range of 4 to 5% is an unprecedented result six years into a growth cycle,” Willett commented. Annual rent change has been positive for 24 consecutive quarters, with the average price increase during that period registering at 3.8%. For comparison, the mid-2000s growth cycle lasted 19 quarters, and annual rent growth averaged 2.8% in that span.

More Deliveries on the Way

A recent slowdown in the number of multifamily housing units authorized by building permits suggests that the apartment construction volume should soon cool slightly, according to MPF. Right now, 534,743 units are under construction in the nation’s 100 largest metros.

“With so much additional product finishing very quickly, the apartment leasing environment could become more competitive in the short term,” according to Willett. “A large block of new supply is scheduled to finish, just as demand registers its routine seasonal slowdown in the winter months. However, barring a pronounced stumble in economic growth, there’s nothing suggesting future stock is going to cause big-picture problems.”