DALLAS—The steady pace of apartment deliveries in urban submarkets during 2013 has made inroads on occupancy in those submarkets as of this year's first quarter, Axiometrics Inc. said Friday. Although the multifamily data firm noted an uptick in the occupancy rate nationally over the past two months, it's expecting the erosion of occupancy in urban core submarkets to continue throughout the year.

“The occupancy decrease within these urban cores isn't surprising, especially given the amount of new supply coming to the market,” says Jay Denton, VP of research with Dallas-based Axiometrics. “These submarkets will likely continue to see occupancy drop throughout 2014 in the face of increasing supply.”

Axiometrics says 155,124 multifamily units were delivered last year. For this year, the identified units coming on line will total 258,011.

Among urban core submarkets analyzed by Axiometrics, Chicago's Gold Coast/River North submarket suffered the largest year-over-year drop in occupancy at 320 basis points. Builders added 1,905 units to the submarket last year.

Not far behind were the Capitol Hill/Southwest submarket in Washington, DC, with a 2.4% Y-O-Y decline in occupancy; and Chicago's Loop at -1.4%. There will be more new supply in both submarkets, according to Axiometrics.

In the face of eroding occupancy rates, though, not many of these urban submarkets are cutting back on supply, according to Axiometrics. And some locations, such as Houston's Montrose/River Oaks submarket, are boosting supply because of continued strong annual effective rent growth. In the case of Montrose/River Oaks, rent grew by 3.42% in Q1, and nearly 7,300 units are slated for delivery this year, although its occupancy rate declined by 1.3% Y-O-Y.

There are some exceptions to the general trend of urban core occupancy declines. Atlanta's Fulton and Nashville's downtown submarkets showed positive Y-O-Y occupancy changes, increasing by 0.7% and 1.0% respectively, even as new deliveries came on line.

Further, both submarkets demonstrated strong growth in annual effective rent: 5.67% (Atlanta/Fulton) and 5.61% (Nashville's Downtown/West End/Green Hills) during Q1. Both submarkets will also increase their supply in 2014.

Even stronger annual effective rent growth was seen in the downtown submarket of Seattle-Bellevue-Everett at 5.75%. Developers added 2,395 new units in 2013 and are projected to bring an additional 3,743 units on line during the remainder of 2014. This is occurring despite the Y-O-Y increase being modest at best.

Nationally, the occupancy rate ticked up to 94.5% in March. Axiometric says this not only represents a 20-bps increase from February, it's also up 45 bps from January. In addition, 51 of the top 121 MSAs currently have an average occupancy rate greater than 95.0%, led by the 97.7% of Naples-Marco Island, FL, which also boost the nation's highest annual effective net rent growth at 12.6%.

Axiometrics' forecast for the year as a whole predicts that occupancy will peak in mid-'14, but will remain above 94.0% for the rest of the year, before falling off in 2015. In terms of March rent growth, class B properties continued to generate the strongest performance, while class A is on a five-month upswing as it continues its recovery from a year of tough comps.