2016 States Recap

Two common themes are emerging from the multifamily narrative of 2016. Firstly, many markets are still having sound absorption numbers, yet rapid new construction is outpacing supply and average occupancies are dropping at the fastest pace since the great recession. Secondly, as a result of the new supply, competition is heating up and we are seeing much lower annual rent growth. Whereas in prior years we were accustomed to seeing annual rent growth nearing double digits, in 2016 numbers in the 3-5% range are much more common. As such, 2016 may go down as the peak turning point in the multifamily metrics when we look back a few years form now.

Here’s a look at the states and their multifamily markets in 2016. All market statistics exclude Student, Military, Senior and Income Restricted Properties and all rent statistics are based on effective rents after concessions.

The state of Alabama had a stellar year by absorbing almost 3800 net rented units. The four metro markets absorbed over 4000 units yet the rural areas lost a net 443 rented units. Huntsville saw its average occupancy grow over 5% in the last year from 87.7% to 92.2%, though effective rent per unit only grew 0.4% for the year. On average, effective rents rose 3.4% per unit in the state with Mobile showing the greatest growth of 3.9% per unit.

Northwest Arkansas lost almost 700 net rented units in the last 12 months and average occupancy dropped 6 percentage points. Occupancy actually got as low as 87% but managed to rebound in the 4th quarter. Little Rock did well, though, by absorbing more than 700 net rented units in 2016. Overall effective rents in the Arkansas markets are up 5.1% per unit and 7.8% per square foot.

Overall absorption for the state was good with more than 6200 units rented at the end of 2016 than before. Phoenix added 4300 units but still saw average occupancy rise by 0.2%. Tucson saw overall occupancy jump 2.2% in the year with absorption of over 1500 net rented units. Rent growth in the state was solid as well, with average effective rent growing 6.3% and 6.1% per unit and square foot respectively. The Flagstaff area exceled with effective rent per unit growing more than 9% for the year.

California markets added almost 13,000 units to the multifamily market in the latter half of 2016 but absorption couldn’t quite keep pace and average occupancy fell 0.3% to 94.1%. The Los Angeles metro area saw the greatest absorption of just under 7000 net rented units and had its occupancy gain 0.4% to 93.7%. While rent growth stalled in 2016 and average only 1.8% over the last 6 months, Sacramento and The San Joaquin Valley averaged effective rent growth per unit of 4.1% and 3.1%, respectively, in the last 2 quarter of 2016.

The Colorado markets absorbed over 5200 net rented units in 2016 yet added about 6400 units, so overall occupancy dropped 0.3% during the year. The Denver market accounted for 5000 of those net rented units. Rent growth has finally slowed with effective rent per unit growing 3.8% to $1293. While definitely good, rental growth it is off the heady pace of prior years.

The DC Market absorbed almost exactly the numbers of new units added so overall occupancy held for the year at 92.8%. Rent growth appears to have stalled as effective rents grew by less than 1% in the 2nd half of the year. Furthermore, almost 15% of the properties in the area are now offering some kind of rent concession.

Absorption overall was good in the Florida markets with almost 12,000 more units rented at the end of 2016 than at the beginning. However, almost 25,000 units were added to the 10 Florida markets. Consequently, average occupancy in the state dropped 2½ percentage points from 93.4% to 91.9%. Every market added new units and all of the Florida markets except Melbourne and Tallahassee saw average occupancy decline in 2016. Average effective rent rose 5.8% per unit and 5.4% per square foot in 2016. Melbourne saw the greatest rent increase with effective rent per unit growing 8.9% for the year. Jacksonville and Tallahassee saw the least rent gains with rent per unit rising 2.4% and 3.4% respectively.

Overall average occupancy held steady at 91.9% for the state of Georgia. Smaller outlying communities fared the best with average occupancy rising 2.1% in the rural areas. Columbus saw the largest decline with average occupancy dropping from 92.5% to 91.9% over the last 12 months. Once again, Atlanta led the charge in rent growth. Effective rent grew more than 7% in the Greater Atlanta Metro area and that pushed the statewide average up to 6.8%. Savannah fared the best in the smaller markets with effective rent per unit growing 4.9% in 2016.

Occupancy dropped 2.4% to 91.9% over the last 12 months in the Des Moines area. The market did absorb over 600 net rented units but new supply outpaced absorption. Effective rent per unit is currently at $875 and effective rent per square foot is holding at $1.03.

Occupancy held steady in the 4th quarter for the Illinois markets and the state is averaging 91.8% occupancy. Chicago absorbed over 1100 units in just the 4th quarter alone. Peoria was the only Illinois market to experience negative absorption in the 4th quarter by losing a mere 10 net rented units. Springfield increased the rented units by 177 and Moline absorbed another 57 units in the last quarter of 2016. Effective rents trended downward in the final 3 months of the year, however, as effective rent per unit dropped 2.1% to $1423 per unit in Chicago. Moline, on the other hand, did see rents climb 1.5% in the 4th quarter.

Indiana did not fare so well in the last quarter of 2016. The state lost approximately 900 net rented units and occupancy dropped from 93.5% to 92.7% in the state. Indianapolis saw its average occupancy drop from 93.2% to 92.6% in just the last 3 months. Effective rent ticked up 0.1% in the 4th quarter in Indianapolis, though it dropped 2.5% in Fort Wayne and 1.5% in Evansville. Indianapolis also saw a large increase in the numbers of properties offering concessions though the average concession package dropped slightly.

Both pricing and occupancy dipped in the latter half of 2016 for the Wichita market. Effective rents dropped slightly from $642 per unit to $637. Occupancy, meanwhile, dipped 1.2% from 93.2% to 92% in the last 6 months of the year.

Like Indiana, Kentucky had negative absorption and negative occupancy change in the 4th quarter of 2016. Lexington lost almost 200 net rented units and occupancy dropped from 92.2% to 90.6% in the last 3 months. Louisville fared worse with a net loss of about 650 rented units and occupancy fell all the way from over 94% to 91.5%. Rents didn’t fare much better. Effective rent in Louisville dropped 0.7% in the final quarter and they dropped 0.8% in Lexington.

The Louisiana markets absorbed more than 1800 net rented units but new construction outpaced supply and average occupancy dipped 0.7% to 90.7% in 2016. Baton Rouge performed exceptionally well and absorbed more than 1200 units and occupancy rose from 91.4% to 91.9%. Statewide average rent growth was solid at 4.7%. Baton Rouge had effective rent per unit rise 3.7% while New Orleans and Shreveport saw rent growth of more than 6%.

Baltimore added nearly 1800 units to the market inventory in the 4th quarter of 2016, yet absorbed only about 500 units. Consequently, average occupancy dropped 0.8% from 93.5% to 92.7%. Effective rent per square foot also dropped in that last quarter for Baltimore, from $1.43 to $1.41. With the amount of new product rising, both the number of properties offering concessions and the average concession rose in the 4th quarter as well.

Kansas City saw its average occupancy drop from 91.9% to 91.4% in the 4th quarter of 2016 when it added almost 1000 units, yet absorbed only 250. St. Louis, as well, saw its occupancy drop half a percentage point yet that was from negative absorption of almost 200 units. Effective rents, too, declined in the 4th quarter for Kansas City and St. Louis, dropping 1.2% and 0.8% per unit respectively.

Gulfport/Biloxi had a solid 2016. Overall occupancy jumped from 88.9% to 90.6% over the last 12 months. Effective Rent per unit climbed a solid – but not stellar – 2.8% for the year in the beach cities. Jackson and Central Mississippi saw its average occupancy dip from 93.5% to 92.7% on flat absorption and the introduction of new units. Effective rents in the central swath of Mississippi rose a modest 2.2% for the year.

Overall, North Carolina had an excellent year. Statewide, the North Carolina markets added almost 12,000 units in 2016 and managed to absorb nearly the same amount and keep average occupancy at 91.5%. Fayetteville saw average occupancy jump 2.7% for the year, though Wilmington experienced a decline of over 3%. Effective rent per unit rose a solid 6.2% in North Carolina with Charlotte, Raleigh-Durham and Wilmington all experiencing rent growth north of 6%.

Albuquerque had a solid year. Average occupancy rose 2.4% to 94.2%. Rent growth was sound at 3.2% per unit, rising from $783 to $808.

Overall, Nevada had hefty absorption numbers in 2016 but new construction has picked up and is slightly outpacing absorption. Both Las Vegas and Reno saw occupancy dip 0.3% to 92.7% and 95.5% respectively. Both markets saw rent growth of more than 6% with Las Vegas ending the year at $900 per unit and Reno starting 2017 at $1018 per unit.

Oklahoma City and Tulsa had markedly different outcomes in 2016. Occupancy rose 0.9% to 88.9% in Oklahoma City while average occupancy decreased 1.1% to 90.2% in Tulsa. While Oklahoma City saw a modest gain of 1.9% to $712 in effective rent per unit, Tulsa saw its average per unit drop from $671 to $664.

Portland had a slow 4th quarter in 2016. The market absorbed just over 100 net rented units and average occupancy declined by 0.7% to 92.5%. Effective rent per unit dropped from $1291 to $1274, a decline of 1.3%.

Both Philadelphia and Pittsburgh experienced the seasonal slump in the 4th quarter of 2016. Both markets experienced negative absorption and occupancy declines. Pittsburgh occupancy dropped a whole point to 90.6% while Philadelphia fared better with a slight occupancy decline of 0.2%. Philadelphia notched a trace 0.1% gain to $1211 in effective rent per unit while Pittsburgh had a decline of 0.4% to $1033 per unit.

The South Carolina markets added about 4000 new units and managed to absorb almost that many. Overall occupancy for those markets dipped slightly to 91.6% by the end of 2016. Charleston and Columbia had gains of 1.4% and 0.5% respectively, while Greenville-Spartanburg and Myrtle Beach had declines of 2.8% and 1.6% respectively. Rents took a big jump in 2016 with Charleston seeing effective rent per unit jump 9.6% over the last 12 months while Columbia and Greenville-Spartanburg saw gains of more than 5% per unit.

Tennessee is another state that had good absorption in 2016, yet new supply is outpacing demand. Tennessee markets added about 8500 new units in 2016 and managed to absorb a little more than half that. Consequently, statewide occupancy dropped 1.4% to 91.6%. Nashville saw occupancy drop 3.9% in the year by absorbing 1800 net rented units but adding more than 6200 units. Knoxville fared much better with average occupancy rising 1.9% to 94.9% on absorption of almost 800 units in 2016. Effective rents continued to climb in 2016 with statewide growth of 5.6% per unit. All the new units in Nashville led the way with rent growth and pushed the market average up 6.6% in 2016 to $1091 per unit. The other Tennessee markets had rent growth in the 3-4% range for the year.

The good news is Texas markets absorbed more than 32,000 net rented units in 2016. The bad news is that more than 56,000 units were added to the supply. Therefore, average occupancy for the state dropped more than 1% to 90.3%. With even more new product coming on the market the statewide average may drop below 90% by the end of the 1st quarter of 2017. San Antonio was the only large market in Texas to keep pace with new construction. Houston saw the largest decline in occupancy with a drop of 2.8% to 87.9%, the lowest since the great recession. Price increases started to taper off in 2016. Statewide, effective rent growth per unit was 2.4%. The Dallas- Fort Worth area led the way with effective rent increase of 6.4% per unit to $1053. Houston saw rents decline for the year and Austin and San Antonio had modest gains of 3.6% and 2.8% respectively.

Sounding a familiar refrain, Salt Lake City put up good absorption numbers in 2016, yet new supply outpaced absorption. The market absorbed almost 3300 net rented units over the last 12 months but added more than 4800 units to the inventory, thus pushing average occupancy down 2.1% to 92.1%. New, high end units pushed effective rents up 7.7% for the year to end at $1012 per unit.

Roanoke took a hit in the latter half of 2016 with negative absorption of almost 260 net rented units sending occupancy down 2.5% from 95.4% to 93.1% in just the last 6 months. Norfolk and Richmond, on the other hand, managed to absorb more than 300 net rented units each. Rents were flat or declined in the 2nd half of the year for all of the Virginia markets with Roanoke again faring the worst with effective rent per unit dropping 2.3% to $791.

While the pace of new construction is slowing many markets still have their pipeline full of projects to come online in 2017. So looking ahead, rent growth is liable to moderate even further in 2017 and market occupancies will decline even further on 2017 in several markets.