April 20, 2016
The multifamily sector continues to be one of the strongest when it comes to commercial real estate. With Axiometrics Inc. and Reis Inc. both coming out with their 1Q 2016 numbers, Connect Media’s Amy Wolff Sorter caught up with Jay Denton, Axiometrics’ senior vice president, analytics, for some analysis behind the metrics.
Q. The latest statistics showed a year-over-year drop in rent growth, with occupancy essentially flat from the year before. Is this anything to panic about?
A. Overall, the apartment market is still performing very well. If an owner was told rent growth would be 4% and occupancy at 95%, that would usually be considered terrific. The sector has experienced such strong growth in recent years that these more moderate growth numbers do not generate the same type of excitement as the robust performance from 2014 and 2015, but they are still solid.
Q. Some secondary markets have made your “top 25” list. Salt Lake City, for one. Also Sacramento, Portland and Charlotte, NC. What fundamentals to these markets have in common, that are driving rent growth?
A. Each market has its own story, but there are some common themes. They all have tremendous occupancy rates and above-average job growth. Salt Lake City and Charlotte had slower growth in 2014 and have been improving since then as job growth improved. They are great examples of metros that went through multiple “cycles” during this great apartment run. Sacramento is an example of a market that is still starved for new supply. More than 47,000 jobs were created in the past 24 months, but only about 1,500 multifamily units were permitted for construction during that time. And Portland has the cool factor that really draws in young renters. Rent growth has been incredible, but it has slowed from 15% to 10%.
Q. What is your forecast for 2Q 2016?
A. I expect annual rent growth at the national level to dip below 4% as some of the top-tier markets decelerate. The pace of rent growth the last few years was simply unsustainable, but these are still great times for the apartment industry.
Other things I’ll be watching for include:
- What will happen in Houston as units continue to deliver in a down local economy.
- Whether Seattle or Portland’s growth will slow, as the San Francisco Bay area has already done so.
- The impact of new unit deliveries in the New York metro, which already has a soft market.
- Whether markets with job growth greater than 3% can continue to create jobs at that pace.