In all but two of the 79 primary apartment markets covered in Reis’s Apartment Sector Preliminary Trends Release, average effective rents either increased or remained flat in the second quarter of 2017, demonstrating a marked improvement over the previous quarter. Nationwide, the average effective rent grew by 1.1% between Q1 and Q2 2017, and by 3.0% year over year.
The national average U.S. apartment rent grew by 1.3% from the first quarter to the second quarter, up to $1,335 per unit. This is the strongest quarterly increase in two quarters. The gap between asking and effective rent growth is currently 0.2%, down from the 0.5% gap in the first quarter. On a year-over-year basis, asking rents grew by 3.5%.
The national vacancy rate increased from 4.3% to 4.4%, alongside a lower than expected rate of new completions. Local vacancy rates increased in 27 metro markets, but this increase only exceeded 0.2% in eight metros.
New construction totaled 36,477 units in the second quarter – the lowest quarterly new construction rate in more than two years. Net absorption totaled 27,818 units, and just barely pushed the vacancy rate upward.
According to REIS’s Barbara Byrne Denham, this growth in effective rents suggests that rising home prices have led some potential home buyers to rent instead, or to remain in their rental units. Taken together with a drop in new completions, this also points to a drop in free rent incentives, which have been used by some landlords to attract potential tenants.
Columbia, South Carolina, and Little Rock, Ark., are the only two metros in which effective rents declined this quarter – down from the first quarter, when 24 metros recorded rent declines. Charlotte, Denver, Colorado Springs, Dallas, and Washington, D.C., all reported rent growth of 2.0% or more in the second quarter. Tulsa, Okla., experienced the greatest vacancy rate increase for the quarter at 0.9%, while Dayton, Ohio, experienced the greatest vacancy rate decline at -0.4%.
In New York City, the effective rent increased by 0.6%, following four quarters of decline in the past five quarters. San Francisco’s rents have also increased by 0.4% in the quarter. Both major apartment markets have experienced effective rent declines – New York City’s effective rent has fallen 1.0% YOY, while San Francisco’s has fallen 0.3% YOY.
