August 7, 2017
By Chuck Ehmann
Slipping job-growth numbers in the face of a large influx of new supply caused the recent plummet of San Francisco Bay Area markets from double-digit annual effective rent growth in late 2014-mid 2015 to negative territory in late 2016 and early 2017.
Though job growth dropped by 200 basis points (bps) or more in the Bay Area, it still outperformed the nation. The new supply was a major factor in the rent-growth drop, but so was the overreaction to the shifts in drivers such as the job market, RealPage Data Analytics analysts said.
A similar scenario is playing out in markets such as Dallas and Seattle, though rent growth is still above the long-term average in both metros.
In Dallas, job growth has fallen 120 bps to 3.4% since July 2015. Rent growth crested at 6.4% in June 2015 and was 2.4% in June 2017, underperforming the national rate (2.5%) for the first time since December 2010.
One major reason: 41,339 new units delivered from 2015 through the first half of 2017, with 13,320 more identified for the second half of this year. Though demand remains high, 94 properties were in the initial lease-up phase in June, more than ever before.
Seattle rent growth is far outperforming the nation, at 4.7% in June, and forecasts are positive for the future. But the figure reached 8.4% in November 2015, meaning a 270-bps drop in performance in the past 20 months. Meanwhile, job growth dropped from 3.6% to 2.4% since May 2016 – still above the national rate.
Supply exacerbates the rent-growth drop here, too. Some 20,780 units were completed in the market in the past 10 quarters, with 7,543 more to come this year and a record 45 properties in lease-up in June. That has kept the rent hikes down. One difference from Dallas is that Seattle’s urban core submarket has yet to feel too many effects from the supply, as it continues to perform strongly.
So, markets with strong job growth can experience declining rent growth – especially when construction cranes are abundant.
Chuck Ehmann is a Real Estate Economist for RealPage Data Analytics.
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