CARROLLTON, TX—In a case of the glass remaining more than half full even if it emptied slightly, apartment lease renewal rates remained above 50% in April, according to MPF Research. The 52.2% renewal rate among expiring leases last month, down 290 basis points from the 10-year high seen in February and 70 bps from the year-ago period, represented only the third Y-O-Y decline in the past 36 months.

“Declining renewal rates had been expected with so much new supply hitting the market, pulling some renters out of existing top-tier properties,” says Jay Parsons, VP of MPF Research. “And the overall renewal retention rate in April was still quite high relative to the norms.”

The retention rate has remained above 50% in each of the past 28 months, MPF says. That compares historically to a renewal rate in the mid- to upper 40s prior to 2010.

Following the weaker-than expected demand for apartment units in this year's first quarter, an encouraging sign is the continuing pickup in lease applications. April's application tally shows a slight upward trend Y-O-Y.

Conversely, though, MPF notes that demand across the nation's 100 largest metro areas climbed at a comparatively modest pace of 33,500 units in Q1. That total fell short of the typical demand for 40,000 units to 50,000 units seen in Q1 of the previous few years. In addition, quarterly demand in early 2016 fell well short of completions that totaled 59,500 units during the year's initial three months, reflecting the busiest construction streak the multifamily sector has seen in quite some time.

The tenants who re-upped last month will be paying, on average, 4.9% more in rent per month. Although that average is down from the 5.5% peak seen last summer, it's still above the average for this cycle. Over the past 28 months, the average rent increase for a lease renewal was 4.7%, marginally higher than the mid-2000s norms.

The lease-transaction results are “very encouraging for apartment investors and managers,” Parsons says. “But let's put all the exuberance aside for a minute and remind ourselves that caution is still justified. April is an important month, but it's still just one month. Monthly data can be volatile, so let's see how the next few months play out.”

The apartment market is heading into the typically peak leasing season, running from April through August. During those months, a large percentage of the year's leases are signed. Many apartment property managers strategically schedule the bulk of their leases to expire in spring and summer months, when demand is strongest. Rent performances during these months typically drive annual results.

“If the momentum seen in April extends into the summer months, 2016 will be another big year for the apartment industry,” Parsons says. “However, with so much supply at the top end of the market, particularly in urban submarkets, we expect to see some softening in certain spots. Conversely, top-tier suburbs should continue to perform very well.” MPF's reports incorporate lease-transaction figures based on a same-store set of apartment units, utilizing software products from RealPage, the parent organization of MPF.

The retention rate has remained above 50% in each of the past 28 months, MPF says. That compares historically to a renewal rate in the mid- to upper 40s prior to 2010.

Instant Insights /

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