Last week, MPF Research came out with a midyear report that, like Axiometrics' view, painted a picture of a market at highs not seen since the tech boom of 15 years ago.
MPF reported that rents for new leases rose 5.2% year-over-year, which is a 15-year high. Rents for renewal leases weren’t too far behind at 4.3% year over year.
With more residents staying put, those renewals increases are telling. In the second quarter, 51.9% of households with expiring apartment leases remained in place, compared with the 50.6% retained when leases expired a year earlier, according to MPF, the rental market intelligence division of RealPage. Before 2010, retention hung at around 45%.
MPF also reported that the West region posted new lease rent growth of 7.8% year-over-year, more than three percentage points higher than the Northeast, South, and Midwest regions. The West also had 7 of the top 10 areas for rent growth.
“Throughout the current economic cycle, the nation’s rent growth leaders have been in the Pacific Northwest, from Seattle down through the San Francisco Bay Area, plus Denver,” said MPF Research vice president Greg Willett in a release. “What’s really driving such high levels of overall growth in the West is that price increases, well above the national norm, have spread to the region’s other large markets, including all of Southern California, Phoenix, Las Vegas, and Sacramento. These areas were slow to achieve economic recovery coming out of the recession, but now are adding jobs and households at levels that stimulate considerable apartment demand, with occupancy rates tightening and rents rising sharply.”
As rents rose, occupancy hit 94.9% in the second quarter, which was up from 94.6% a year earlier. And as occupancy tightens, construction continues. For the second straight year, about 400,000 new units will be started in the nation’s 100 largest markets, according to MPF. At the end of the second quarter, 421,345 units were under construction in those markets.
“While new supply tends to slow rent growth historically, that hasn’t been the case as of late,” Willett said. “Construction on luxury units in the most desirable neighborhoods results in new product rents being too high to pull many residents out of the existing stock. Nationally, the typical monthly rent for new communities is around $1,600, which is a little more than 20 percent over rents in the best properties built prior to 2010.”
Unlike Reis, MPF projects that apartments will remain full in 2015-2016 and rents will continue to rise over the next 12-18 months, though at a slower pace.
“While overall occupancy should inch down very slightly, it really just reflects the volume of product moving through initial lease-up, rather than any real softening in the anticipated performance,” Willett said.