RICHARDSON, TX—The wave of recent apartment completions is meeting some resistance in the form of a slight drop in occupancy nationwide, RealPage and Axiometrics said Thursday. Axiometrics data put current US apartment occupancy at 94.5%, down from 95.1% this past fall. Demand over the past two quarters fell shy of deliveries by more than 100,000 units across the US.

Partly the drop is on account of new product coming on line at a time of year when demand typically shows a seasonal downturn. “Occupancy remains solid relative to the long-term norm, but there are lots of available units at just-completed projects,” says Jay Denton, VP of RealPage's Axiometrics business group. “Also, top-tier existing projects are losing performance momentum for the first time in this market cycle. Some renters from established luxury projects are opting for the newest deliveries in order to take advantage of rent discounts often offered during the initial lease-up process.”

While rental pricing is down in the ballpark of 1% on a year-over-year basis in New York, San Francisco and Houston, in fact rents nationally grew by an average of 0.9% during the first quarter and by 3.7% Y-O-Y, with a few local markets such as Sacramento posting growth at more than twice the national average. RealPage chief economist Greg Willett says the effects of ebbing demand are more evident across product classes rather than across markets.

Renter demand for class B and C units remains strong even amid the drop in demand seen in the high end, he tells GlobeSt.com. Moreover, class A demand remains strong in suburban markets that have not added a substantial amount of new product.

By and large, though, landlords have not reacted to the uptick in vacancies by lowering their asking rents. “It's not surprising that we saw occupancy backtrack a little bit over the past six months or so,” partly on account of the seasonal lull in leasing, says Willett. “Over the past few months, we were going to have limited demand, and we were delivering a lot of product. Operators just realized that if you cut rents during that period where there isn't demand out there, it's not going to help you.” The second quarter will be a telling one, “if we can sustain the rent growth when the demand should be there” given the normal seasonal leasing patterns.

Axiometrics reports that 581,556 apartment units are under construction at the moment, with scheduled deliveries climbing to an average of 102,000 units per quarter during the remainder of this year, compared to an average 82,000 units finished per quarter in late 2016 and early 2017. However, Willett emphasizes the word “scheduled” in the phrase “scheduled deliveries,” pointing out, “We've seen the pattern over and over again where developers have a hard time getting product over the finish line.”

He says the difficulty in finishing projects on schedule often stems from the availability of skilled labor, or lack thereof, more so than from challenges in obtaining construction financing. The latter, though, is a major factor in the tapering of scheduled deliveries beginning in 2018.

Instant Insights /

Delivery Uptick Meets Seasonal Leasing Dip

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