SOURCE: Axiometrics Inc.

Axiometrics Inc.

November 19, 2012 11:31 ET

Axiometrics Apartment Data Shows Typical Seasonal Softening in Effective Rent Growth, Good Absorption of New Supply

DALLAS, TX --(Marketwire - November 19, 2012) - Effective rent and occupancy levels during October 2012, which showed declines of -0.28% and -0.14% respectively, were almost the same as the slight declines recorded over the same period of 2010 and 2011, according to the latest data reported by Axiometrics Inc., the leading provider of apartment data and market research. In addition, with lease-up properties still absorbing well and offering little in the way of concessions, Axiometrics notes that the fourth quarter of 2012 looks to be relatively mild in terms of the typical seasonal slowdown expected for effective rent growth and occupancy.

"So far, we are not seeing any macro-level indications signaling a larger-than-normal seasonal decline this fourth quarter, and the slight softening in effective rent growth and occupancy was to be expected," said Jay Denton, vice president of research for Axiometrics. "Heading into the last part of the year, the overriding trend for effective rents continues to be stable, positive growth."

Monthly, Year-to-Date, and Annual Effective Rent Growth and Occupancy
The slight decline in monthly effective rent growth of -0.28% between September and October is almost exactly the same as what was recorded during 2010 and 2011. Axiometrics notes that this decline, however, compares quite favorably to the same-period decline of -0.64% recorded in October of 2008, which was then followed up by declines of -1.09% in November and -1.15% in December. 

Year-to-date (YTD) effective rent growth slowed from 4.69% in September to 4.40% in October, after reaching a peak for the year of 4.73% in August. This is slightly below YTD growth rates of 4.94% in October 2010 and 4.88% in October 2011. At 9.63%, San Francisco has the highest YTD effective rent growth rate in the country, while Las Vegas at -0.07%, and Savannah at -0.08%, are the only two markets with negative YTD effective rent growth. Some of the decline in Savannah is explained by troop deployments overseas.

Annual effective rent growth was practically unchanged from September, measuring 3.61% in October. This October, eight markets had annual effective rent growth greater than 7.0%. Of those eight MSAs, three were in Northern California and two were along the Texas Coast.

While effective rent growth over the past few years has captured media attention, Axiometrics reports that because there was such a marked rent decline during late 2008 and throughout 2009, rents nationally are only up 5.3% from where they were in October 2008. There are large variances at each end of the spectrum, such as San Francisco, which is up 20.3% or $415 per unit per month from four years ago. However, most renters in most markets are actually not paying much more now in rent than they were in October 2008. Specifically, average rent levels at the national level over this time period are as follows:
 October 2008: $1,018
 December 2009 (the trough of the market): $944
 October 2012: $1,072

The national occupancy rate decreased 14 basis points (bps), dropping from 94.56% in September to 94.42% in October. Still, the occupancy rate is up 80 bps YTD and 45 bps on an annual basis. Occupancy growth is slightly stronger than it was in October 2011, when it was up 69 bps YTD and 33 bps annually. Most of the continued absorption is occurring in new lease-up and Class C properties.

The following chart lists the top 8 and bottom 9 markets for annual effective rent growth and their occupancy rates:

Effective Rent
Growth Rank
out of Top 88
MSAs
MSAName Annual Effective
Rent Growth
Oct- 12
Occupancy Rate
Oct- 12
1 San Francisco, CA 8.3% 95.8%
2 Naples, FL 8.0% 95.9%
3 Louisville, KY 7.9% 95.5%
4 Corpus Christi, TX 7.8% 96.1%
5 Oakland, CA 7.4% 96.8%
6 San Jose, CA 7.1% 95.7%
7 Lansing, MI 7.1% 95.9%
8 Houston, TX 7.1% 93.1%
       
80 Greensboro, NC -0.1% 92.3%
81 Camden, NJ -0.2% 93.8%
82 Albuquerque, NM -0.4% 93.7%
83 Little Rock, AR -0.6% 91.8%
84 Virginia Beach, VA -0.7% 92.9%
85 Las Vegas, NV -0.8% 91.2%
86 Tacoma, WA -1.1% 93.7%
87 Mobile, AL -1.3% 92.1%
88 Savannah, GA -1.9% 94.4%
  National 3.6% 94.4%

Concession Values
Concession values dropped slightly for stabilized properties in October, and on average are now equal to one week of free rent on a 12-month lease. Axiometrics expects normal seasonal factors to lead to a slight increase in concession values over the next few months.

Interestingly, Axiometrics notes that the disparity in concession values between new lease-up properties and stabilized properties has declined since late 2010, with lease-up properties now offering much lower concessions. The rise in rents in many markets, especially for Class A properties, has enabled lease-up properties to offer units at much closer rates than existing properties, thus allowing them to lower the concessions needed to attract tenants. As new supply continues to hit the market and absorption slows, however, Axiometrics indicates it would not be surprising to see an uptick in the national concession value, though stronger job growth could counteract this effect. 

About Axiometrics
Axiometrics is the only multifamily research provider to survey every property in its database at the floor plan level every month. Every property. Every month. Only Axiometrics. Learn more at www.axiometrics.com or by calling 214-953-2242. 

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