DALLAS, TX – Year-over-year apartment rent declines in some of the nation’s highest-priced markets continued to affect the overall national market, as performance moderated in the third quarter of 2016, according to early figures from Axiometrics, a provider of apartment and student housing market intelligence.
The average effective rent nationwide was $1,289 per unit per month, compared to $1,251 in the third quarter of 2015.
That marked a year-over-year increase of 3.0% for the third quarter of 2016, more than 2 percentage points below the robust 5.2% rent growth of one year ago. This marked the fourth straight quarter in which the annual rent-growth rate decreased.
“While the national apartment market is still performing above the long-term average, the moderation from the unsustainable levels of 2014 and 2015 has come, as Axiometrics predicted,” said Jay Denton, Axiometrics Senior Vice President of Analytics. “In particular, rent growth has declined precipitously in markets with the highest rents in the country, such as New York and the San Francisco Bay Area.”
Rent levels declined year over year in the three major markets with the highest rents — San Francisco, New York and San Jose — and increased by less than 2% in the fourth highest rent-growth metro, Oakland.
Although Houston isn’t a high-rent market, its -2.8% rent growth in the third quarter also helped weigh down the national rate.
Hartford, Birmingham and Oklahoma City also experienced negative annual rent growth.
“Job growth isn’t bad in the Bay Area and New York, though the rate has slowed over the past year, so demand for apartments is still relatively strong,” Denton said. “However, the amount of new supply that has been and will be delivered to these markets is extremely large and is forcing owners and developers to keep rents lower than they would like so they can remain competitive.”
San Francisco, though, may be showing some signs of recovery. Though year-over-year rent growth was negative, the average third-quarter rent was 2.6% higher than the average second-quarter payment.
“What that tells us is that the metro’s decline came last fall and winter,” Denton said. “If job growth picks up, the apartment market will gain strength.”
Houston is being affected by job losses in the energy sector, as well as a glut of supply in the urban core Montrose/River Oaks submarket.
“Urban cores in general are showing slowing performance,” Denton said. “The market is feeling the effects of the concentrated new supply in these submarkets. Nationwide, however, supply is just keeping up with the demand.”
The slower performance of high-priced markets is somewhat counteracted by robust fundamentals in secondary markets. For example, annual effective rent growth in Sacramento; Riverside, CA; Salt Lake City; Las Vegas; Fort Worth; Tampa-St. Petersburg; and Nashville are among the 10 highest in major markets.
Effective rents increased 1.2% in the third quarter over the second quarter. The rent-growth rates for the past four quarters have been lower than the previous corresponding quarters. Occupancy was 95.1% in the third quarter, compared to 95.2% in the second quarter and 95.4% in the third quarter of 2015.