National Effective Rent Growth Continues Deceleration In September

Axiometrics Inc., a Dallas-based provider of apartment data and research, reports that national effective rent growth, which has been moderating at the national level for the last two years, continued that trend in September.

According to the data, the annual effective rent growth measured 2.99% for the month; occupancy remained at Axiometrics' forecast rate of 94.9%.

‘The year leading up to the peak in mid-2011 was incredibly strong, with the apartment market moving from terrible to terrific in the blink of an eye. Since then, it has been in a period of moderating rent growth,’ says Jay Denton, vice president of research for Axiometrics. ‘Right now, it is somewhere between the two extremes, depending on the particular area, and by historical standards, is still strong. It is simply not faring as well compared to the very strong results of the recent past.’

At the national level, annual effective rent growth slowed from 3.17% in August to 2.99% in September. One year ago, the growth rate measured 3.63%, and it has slowed in nine of the last 12 months with increases only in November 2012 and in May and June of this year, according to the results.

The data also shows that despite the overall slowdown, 17 of the top 88 metropolitan statistical areas (MSAs) reported an annual growth greater than 5% in September, and California and Florida continue to dominate for effective rent growth, comprising seven of the top 10 performing MSAs.

A sampling of MSAs with annual effective growth of greater than 5.0% in September included these cities: Oakland, Calif (9.04%); San Francisco (7.39%); Seattle (6.95%); and Boulder, Colo. (5.78%). At the other end of the spectrum, Washington, D.C., ranks as the second-weakest MSA out of 88 measured with an annual growth rate of -1.50%. Other MSAs with negative growth were Little Rock, Ark. (-2.28%); Bethesda, Md. (-0.17%); and Philadelphia (-0.23%), according to Axiometrics.

Nationally, the occupancy rate held steady at 94.9% in September, which is up 28 basis points from September 2012 and 77 basis points from September 2011. Currently, 54 of the top 88 MSAs have an average occupancy rate greater than 95.0%, the report shows.

Axiometrics' data also shows that Class C properties continued to generate the strongest annual effective rent growth in September, as well as the highest occupancy growth. For the month, Class C properties increased to a growth rate of 4.32%, as compared to 3.73% in September 2012. In addition, occupancy for Class C increased 82 basis points to 93.56%. Class A properties generated the lowest annual effective growth rate in September at 2.55% yet maintained the highest occupancy rate at 95.38%. Class B properties slowed from a growth rate of 3.53% in September 2012 to 3.20% in September 2013 – though their occupancy over this period increased by 10 basis points to 95.22%.

Performance continues to vary according to specific market conditions. In particular, Axiometrics reports that the Mid-Atlantic region is struggling to generate rent growth. In addition to the previously noted metros of Washington, D.C.; Bethesda; and Philadelphia, Virginia Beach, Va., (1.16%) and much of the Carolinas are also weak, according to Axiometrics. Specifically, the annual effective rent growth in Charlotte, N.C., has steadily slowed from 7.06% last September to 2.08% this year; Raleigh, N.C., dropped from 4.73% to 2.68% over the same period. Likewise, the South Carolina MSAs of Charleston (2.49%) and Greenville (0.58%) also underperformed in comparison to September's national average.

Axiometrics also reports that some Florida markets have struggled a bit, but Miami (3.77%) and West Palm Beach (4.17%) rank in the top 30 for rent growth. On the other hand, Tampa and Orlando, both of which generated growth of 2.27% in September, have underperformed compared to the national average throughout most of the recovery period.

Bright spots for effective rent growth outside of the West Coast MSAs include the Texas MSAs of Houston (5.28%), Austin (4.86%) and Dallas (3.60%), all of which are above historical averages, despite escalating deliveries of new units, according to the data. Denver remains among the nation's strongest growth markets for the fourth consecutive year with a rate of 7.04% in September. Atlanta, with new supply well-below the long-term average and with an improving job picture, has improved its rent growth rate throughout the year, measuring 4.94% this month.


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