CARROLLTON, TX-In its year-end report concerning the U.S. multifamily property sector, locally based MPF Research pointed out a few interesting trends. First, rent growth during the past year at 3% remained slightly above the long-term norm of 2.5% recorded during the past couple of decades and second, national occupancy was at 94.9%, slightly above the 94.7% reported at the end of 2011.
Though the occupancy was slightly lower than the 95.4% reported during Q3 2012, it should be remembered that the nation’s occupancy rate bottomed out during the recession at 92% in 2009. Regardless, MPF Research vice president Greg Willett points out that property owners and operators aren’t necessarily pushing rents – or at least aren’t pushing them as hard as they were a year ago.
“Many on the operations side of the apartment industry have focused on sustaining their very tight occupancy levels during a period when job growth and new household formation have been fairly sluggish at the same time that renter movement has begun to inch up from the unusually low levels experienced in the previous few years,” Willett explains in a prepared statement.
The renter movement is likely to continue – though single-family housing prices have been at manageable levels, the MPF research statistics show that not many renters are forsaking multifamily housing for single-family housing.
“While the number of apartment renters opting to buy is rising a little, it remains far below the levels apartment operators were accustomed to prior to the recession,” Willett said. “Families that have been renting single-family homes, rather than apartments, comprise a big portion of the first wave of homebuyers seen in the cycle,” Willett comments. “By far the biggest component of the apartment resident base, particularly within large urban areas, consists of young singles living alone or young-couple households. Single-family homes just aren’t the right housing option for many of them, regardless of shifts in the pricing relationship.”
Because of this, demand for 112,900 units was posted throughout the country’s 100 largest metros in 2012, surpassing the total completions of 91,500. This was less than half of 2011′s demand total and slightly more than a third of 2010′s absorption. Willett says he isn’t surprised that demand backed off somewhat. “With the existing stock basically full almost everywhere, the only net absorption of units that could occur in many areas was limited to the demand that came from getting still-limited new supply through the initial lease-up process,” he points out.
Not much will change in the coming year, either. Though starts are anticipated to come in at around 250,000 units nationwide, much of that won’t come online until 2014. “Most places are starved for new product right now, so properties that will complete over the coming year appear likely to do incredibly well, generally without hurting the results for the existing stock,” Willett predicts.
Rent growth should also hover around 3%, even with new product in the works. “Increasing deliveries will stimulate more leasing activity, and an upturn in the number of people coming through the front door can trigger more confidence on the part of property managers, even if overall occupancy rate isn’t moving in a meaningful way,” Willett explains. “Also, even the moderately stronger job growth volumes that most leading economists are anticipating during the second half of the year could help alleviate the uncertainty about future demand prospects that some apartment operators exhibited when setting prices over the past year.”