The annual pace of U.S. apartment rent growth accelerated to 2.9 percent in the third quarter, according to real estate technology and analytics firm RealPage, Inc. (NASDAQ: RP). The bump up from 2.5 percent annual rent growth in the second quarter at least briefly reversed the pattern of slowing price increases recorded since late 2015.
A little more pricing power for apartment owners and operators reflects that occupancy inched higher in recent months. Occupancy in the third quarter stood at 95.8 percent, up from 95.4 percent in the second quarter.
“Momentum in the apartment market’s performance during the third quarter slightly surpassed expectations,” according to RealPage chief economist Greg Willett. “Still, there doesn’t seem to be a pronounced shift in the big-picture story. We are about to move into the period of seasonally slow apartment leasing that comes with the cold weather months. Demand will trail completions just ahead, making it tough for the rent growth pace to gain additional traction.”
Demand for 106,716 apartments in the third quarter well surpassed completions that totaled 83,170 units. Year-to-date in 2018, the country’s occupied apartment count has increased by 295,750 units, compared to new project deliveries totaling 232,911 units.
Metro-level rent growth leaders as of the third quarter are Las Vegas, Orlando and Phoenix. Prices climbed between 6 percent and 7 percent during the past year in each market. Rents also jumped more than 4 percent in another half dozen metros: Jacksonville, San Jose, Tampa, Riverside, Salt Lake City and San Diego.
San Jose’s return to the rent growth leaderboard ranks among the biggest shifts in momentum seen across the country of late, as the San Francisco Bay Area had experienced some rent cuts in 2016-2017. Rents also are increasing once again in metro San Francisco, where annual growth came in at 3.5 percent as of the third quarter, and in metro Oakland, now logging 2.6 percent annual price growth.
Building in the U.S. apartment sector remains aggressive. Market-rate apartment completions have totaled some 300,000 to 325,000 units annually since late 2016, and ongoing construction points to that volume of deliveries continuing at least through the end of 2019.
Near-term new supply leaders include Dallas, Los Angeles, New York, Washington, DC and Seattle. Dallas has the most product on the way, roughly 28,000 units. Adding in the 7,000 or so apartments under construction in adjacent metro Fort Worth pushes ongoing building to about 35,000 units across North Texas.
“With so much high-end new product finishing in the near term, the leasing environment will be competitive in that luxury apartment niche,” according to Willett. “At the same time, product shortages remain for moderately-priced rental housing. It’s tough to find available apartments at the middle to lower-end price points across most neighborhoods.”