“There's a lot of uncertainty among operators in terms of what's coming next,” he says. “One thing to maybe watch for is a tendency to overreact in their pricing decisions.” Examples might be the Bay Area and the Washington, DC metropolitan area, both markets in which “the fundamentals suggest that pricing should still be pretty good, but that's not occurring because there's some sense of panic that has trickled down into the market.” In fact, MPF is forecasting rent growth of 5.6% in the Bay Area in the coming year.

Generally speaking, new supply is likely to moderate somewhat after '17 because operators have already seen difficulties in obtaining construction financing and permitting. Even so, says Parsons, “we'll continue to see a lot of new supply in 2018, but '17 should be the peak.”

And Parsons has especially pointed advice for a certain group of apartment operators when it comes to scanning their rent growth horizons. “If you're generally class B, or suburban class A and B, you should be generally feeling pretty good about 2017 and 2018,” he says. “And I would caution owners who have those kinds of assets not to be too conservative in responding to broader market trends, because I think they're well positioned.”

RICHARDSON, TX—Next year will see an increase of about 10% to 20% on what is already a three-decade high for new apartment product, with scheduled deliveries in 2017 climbing to 353,000 units, up from 310,000 units in 2016. RealPage's MPF Research is forecasting a moderation in rent growth for the coming year, with increases averaging about 3% to 3.5%. Cause and effect? Not entirely, Jay Parsons, VP of research with MPF, tells GlobeSt.com.

“The biggest factor is supply, but not necessarily in the way people think,” he says. “The general assumption in our industry, sometimes simplistically, is that if you have more supply you're going to have less rent growth. That hasn't really happened so far in this cycle; over the past couple of years, we've had a lot of supply and a lot of rent growth.”

Parsons notes that multifamily developers have pursued “a fairly homogenous strategy in this cycle. We're building a lot of supply in fairly small areas: high-end, class A product in urban, downtown locations. You may have a new lease-up and within walking distance there are another 15 or 20 new projects that either have just been completed or about to be completed. That does create a challenge for operators in those isolated areas.” As the current year winds down, this has led to “a more competitive leasing environment' in those areas, as operators scale back their rent growth in order to vie for renters.

There will probably be more tapping of the brakes on rent growth next year, and not only because of new supply. There's also the more elusive, difficult-to-pin-down variable that Parsons refers to as “operator sentiment.” Specifically, “operators who see problems with lease-ups in certain locations become more sensitive to that in other locations,” in some instances erring on the side of caution by pulling back on their pricing increases. That's especially the case when an operator's business goes beyond a single submarket into an entire city or region or spans the US.

“There's a lot of uncertainty among operators in terms of what's coming next,” he says. “One thing to maybe watch for is a tendency to overreact in their pricing decisions.” Examples might be the Bay Area and the Washington, DC metropolitan area, both markets in which “the fundamentals suggest that pricing should still be pretty good, but that's not occurring because there's some sense of panic that has trickled down into the market.” In fact, MPF is forecasting rent growth of 5.6% in the Bay Area in the coming year.

Generally speaking, new supply is likely to moderate somewhat after '17 because operators have already seen difficulties in obtaining construction financing and permitting. Even so, says Parsons, “we'll continue to see a lot of new supply in 2018, but '17 should be the peak.”

And Parsons has especially pointed advice for a certain group of apartment operators when it comes to scanning their rent growth horizons. “If you're generally class B, or suburban class A and B, you should be generally feeling pretty good about 2017 and 2018,” he says. “And I would caution owners who have those kinds of assets not to be too conservative in responding to broader market trends, because I think they're well positioned.”