SANTA BARBARA, CA—Multifamily rents averaged $1,359 per month nationally at year's end, the same dollar amount that Yardi Matrix's monthly survey of 121 markets reported for November. On a year-over-year basis, rents in December were up 2.5%, an increase of 20 basis points from the previous month.
Although that's a solid gain, it's also the smallest annual increase recorded by Yardi Matrix since 2010, when annual rents fell 0.4%. Since then, rents have posted Y-O-Y gains of at least 3.3% per year—peaking at 5.4% in 2015—until 2017 broke the streak. Rents were down 0.3% for the fourth quarter, only the second quarter of negative growth since Q2 '10.
The bigger picture, though, is how consistently strong the apartment market has been over the course of the recovery, says Yardi Matrix. “The question for 2018 is how much more steam is left in the market, whether the deceleration will continue or if it will level off or turn negative,” according to the firm's latest monthly survey, issued Tuesday.
Yardi Matrix's forecast is for growth to continue “at roughly the same rate nationally, led by strong demand. The economy shows no signs of slowing down, as GDP comes off two strong quarters and should get at least a boost from lower corporate and personal tax rates, while job growth continues to impress. Combined with the growth of the young adult population, household formation should remain robust.”
However, within individual markets as well as nationally there has been some softening of fundamentals. Nationally, the occupancy rate for stabilized properties has declined 40 bps Y-O-Y and stood at 95.3% as of November. “Is the growth in supply having an impact on rent growth?” the report asks.
Judging by Nashville and other markets with declines in occupancy rates, that seems to be the case. Occupancies in the Music City slid 130 bps to 94.8% as of November, while annual rent growth dropped to 0.5% in December from 5.2% a year ago. Along with the biggest occupancy decline among metro areas was the biggest percentage increase in multifamily stock, with new deliveries adding 5.7% to Nashville's total.
Rounding out the top three for occupancy declines were Miami and San Antonio, each with drops of more than 100 bps as well as rent growth declines of 180 bps and 210 bps, respectively. Other metro areas with above-average declines in occupancy rates include Seattle and Orange County (-0.9%); Dallas and Portland (-0.7%); and the Inland Empire, Raleigh, San Francisco, Chicago, Washington, DC and Austin (-0.6% each).
Looking ahead, Yardi Matrix says that secondary markets such as Sacramento, Orlando, Las Vegas, Salt Lake City and Colorado Springs with affordable rents and growing populations should see above-trend increases in annual rent growth. “Business-friendly markets such as Dallas and Atlanta should see a slowdown in rent increases, but see moderate gains nonetheless, while expensive coastal markets such as New York City and markets with excessive supply growth are likely to see little or no gains,” according to Yardi Matrix.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
