Q1 Metrics Show Apartments Going Strong

DALLAS—By a number of metrics, the first quarter demonstrated that multifamily's reign is far from over. Axiometrics said Wednesday that annual effective rent growth for apartments hit the highest level in three-and-a-half years, and also posted the best Q1 performance since 2006. Absorption during Q1 was up by double digits year over year, according to MPF Research, while Real Capital Analytics said last week that for the first two months of this year, investment sales volume in the sector rose 57% from the year-ago period.

Dallas-based Axiometrics says annual effective rent growth of 4.9% during Q1 represented a 21-basis-point increase over the 4.7% recorded in Q4 2014. The figure is the highest since Q3 2011, when rent growth was also 4.9%, and is the highest first-quarter rate since it reached 5.8% in Q1 '06. Q1 rent growth was up about 59% Y-O-Y, according to Axiometrics data.

“The rapid growth of 2014 has continued into 2015, and is the result of many factors,” says Axiometrics' VP of research, Stephanie McCleskey. Among them, she says, are “solid job growth, single-family homes are becoming less affordable and, of course, the trend of people choosing to rent instead of buy continues.”

Four of the five top metropolitan areas for annual effective rent growth in Q1 were in Northern California, including the number one metro, Oakland/Fremont/Hayward with 14.9%. The others in the top five were San Francisco-San Mateo-Redwood City with 12.6%, Denver-Aurora, CO with 11.9%, San Jose-Sunnyvale-Santa Clara with 11.3% and Sacramento-Arden-Arcade-Roseville, with 8.4%.

While Northern California's dominance in rent growth during Q1 was hardly news, Axiometrics says the nationwide growth story is telling. Thirty-six of the metros in Axiometrics' top 50 had positive quarterly effective rent growth in Q1, compared to 14 in the previous quarter.

Although the typical pattern for apartment leasing during the winter months has been a slower pace, Carrollton, TX-based MPF says Q1 proved an exception, with demand totaling 64,297 units across the 100 largest metros. That's up 55% Y-O-Y, while the annual apartment demand count climbed to 276,513 units as of Q1, a 44% increase from a year ago.

“Accelerating job creation is allowing more young adults to form new households, and almost all of the new households are opting to rent,” says Greg Willett, VP at MPF. “At the same time, relatively few of the more-established renters are leaving apartments to make home purchases for the first time.”

Axiometrics and MPF differ on the occupancy rate for Q1. The former puts it at 94.6%, representing a slight decrease from the 94.7% seen in Q4, while the latter says it's 95.4%, up 10 bps from the previous quarter. Both firms, however, report a Y-O-Y increase in occupancy.

On the investment sales front, RCA says that sales volume in February, the most recent month for which data are available, posted a 65% Y-O-Y increase to reach $9.7 billion. Most of these gains stemmed from portfolio sales, RCA says; individual property volume rose more modestly. The first two months of this year saw sales volume of $19.4 billion, 57% more than January and February of last year.