Vacancies haven't changed, but the growth in rents has slowed

CARROLLTON, TX- The effective rent growth for new U.S. apartment leases in the first quarter was 2.6%, according to MPF Research, the market intelligence division of RealPage, Inc., a Texas-based software provider. At the end of 2011, MPF notes, annual rent growth hit 4.8%. Slower growth among top-end apartment communities, which MPF defines as those built since 2000, largely drove the overall slowdown, with their rents growing only 1.9% over the last year. The rents in older apartment segments grew between 2.4% and 2.9% over the same period. That’s a big change from just over a year ago, when rents were increasing between 4% and 5% in all of these categories.        

Developers in many markets will soon deliver a large number of new apartments, and MPF researchers believe this helps explain the more moderate growth. “Many owners and operators at the best properties want to be sure that their apartments are completely full when deliveries of new units ramp up during the coming months,” says Greg Willett, a vice president of MPF. “In turn, smaller price increases at the top-of-the-market projects are leaving a little less room for big rent bumps in the older stock.”   

Although overall rent growth has slowed, many metropolitan areas, especially those in the West, still experienced big jumps. San Francisco and Oakland led the nation with a 6.3% annual rate in the first quarter. San Jose, Denver-Boulder, Austin, Seattle-Tacoma and Portland had increases between 3.9% and 5.6%.

Several non-Western cities also saw healthy increases. New York City rents grew 3.6%, and Pittsburgh, Detroit, the Twin Cities and San Antonio had rent growths between 2.7% and 2.8%.

The slowdown does not seem driven by the number of vacancies. U.S. apartments had an average occupancy rate of 94.8% in the first quarter, down only a tenth of a point.

“Apartment occupancy rates are holding at very strong levels,” says Willett. “Even with a mild increase in the number of households leaving the apartment sector to buy homes, apartment demand is proving reasonably healthy. Helping support the market, job creation for young adults is proving strong enough to spur some new household formation among those who had been living at home with mom and dad.”