National Apartment Report: Rents, Occupancy Play Teeter Totter

SAN FRANCISCO-Although the national economy is improving and the worst is over in most markets, unease remains in the multifamily sector, according to a new first quarter report by Real Facts, a locally based multifamily data specialist. Modest rental increases occurred in most of the top 25 markets surveyed, but the small gains in rent came largely at the expense of occupancy, which declined in nearly all of the same markets. Of the 15 markets with increases in rent, 13 had decreases in occupancy, according to the report. In all, occupancy levels decreased in 20 of the 25 markets. “Occupancy declines over the last two quarters are sure to dampen investors’ hopes of an imminent upturn and return to strong rent growth,” states the report. “Looking ahead, occupancy levels will need to improve in most markets before sustainable rent growth is possible.”The California continues to be a tale of opposites, according to the report. The southern California markets of Orange, the Inland Empire, Los Angeles and San Diego once again had some of the greatest rent increases in the nation, both for the quarter and the past year, while the northern California markets of San Francisco, Oakland and San Jose experienced some of the greatest declines–both for the quarter and the past year. In Texas, rents stabilized in the hard-hit and overbuilt markets of Austin and Dallas/Fort Worth, as well as in Houston and San Antonio, but not without decreases in occupancy.”If recent positive job growth figures are not an anomaly and the economic recovery continues, we should expect to see occupancy increases next quarter; however, strong rent growth is not likely to follow until interest rates rise enough to both restrict the development of new apartments and make financing home ownership less affordable,” states the report. “Our expectation remains that the Federal Reserve will not put significant pressure on interest rates until after the fall presidential election. Generally, as the economic recovery continues, occupancies and rents will increase most in areas with the greatest population and job growth.”During the first quarter, rents increased modestly in 15 markets-—Orange, Albuquerque, the Inland Empire, Reno, San Antonio, Los Angeles, San Diego, Tucson, Sacramento, Phoenix, Las Vegas, Denver, Oklahoma City, Colorado Springs and Austin. The significant rent growth–more than 1%–occurred in Orange (1.3%), Albuquerque (1.1%) and the Inland Empire (1.1%). Over the last four quarters, the greatest year-over-year rent increases occurred in the Inland Empire (6.2%); San Diego (4.0%); Los Angeles (3.9%); Oklahoma City (3.3%); and Orange (3.2%). Rents stabilized in two markets during the first three months of the year, Dallas/Fort Worth and Houston, and declined in seven others-—Oakland, Tulsa, San Jose, Boise, Portland, San Francisco, Salt Lake City and Seattle. The largest quarterly rent declines were in Oakland (0.8%); Tulsa (0.6%); San Jose (0.5%); Boise (0.4%); Portland (0.4%), and; San Francisco (0.4%). Over the last four quarters, the greatest year-over-year rent declines were in San Jose (5.4%); Tulsa (2.8%); Oakland (2.4%); Austin (2.4%); Portland (2.0%), and; San Francisco (1.6%). For both the quarter and year-over-year, three of five of the biggest rent declines were in northern California markets-—San Jose, Oakland and San Francisco.During the first quarter occupancy levels increased in only five of 25 markets-—Tucson, Boise, Portland, Phoenix and San Jose. The only metropolitan areas with first quarter occupancy growth of at least 1% were Tucson (1.8%) and Boise (1.0%). Additionally, only Tucson and Boise had at least two successive quarters of occupancy growth, with Tucson experiencing three quarters of improvement and Boise four quarters. Fourteen of the 20 markets with occupancy declines this quarter also experienced declines last quarter. Whereas a quarter ago six markets had occupancy levels above 95%, this quarter there was only one-—southern California’s Inland Empire.Over the last four quarters the greatest year-over-year occupancy increases were in Boise (4.3%; Las Vegas (3.1%); Austin (2.8%; Tucson (2.2%); Oklahoma City (1.8%); the Inland Empire (1.4%); and Albuquerque (1.0%). Only two of these seven experienced any of the growth in the first quarter.The greatest quarterly occupancy losses were in Salt Lake City (-1.9%); Albuquerque (-1.7%); San Francisco (-1.7%); Houston (-1.6%); Austin (-1.5%); Oklahoma City (-1.5%); Seattle (-1.5); Tulsa (-1.2%); Los Angeles (-1.1%); and Dallas/Fort Worth (-1.1%). Three of those markets-—Salt Lake City, Oklahoma City and Dallas/Fort Worth-—also had occupancy declines of at least 1% during the fourth quarter as well. Over the last four quarters, the greatest year-over-year occupancy losses were in Sacramento (-2.0%); Tulsa (-0.9%); Portland (-0.9%); Seattle (-0.8%); Houston (-0.8%); and, San Jose (0.7%).