In a recent blog post, the San Francisco – Oakland market was looked at as an example of an area especially hard hit by the changing conditions of 2020. Today, let’s take a look at an example of a market that has managed to stave off both average occupancy and average effective rent losses over the last 12 months. One such example, though certainly not the only example, is the Boise market. As always, numbers will refer to conventional properties of at least 50 units.
New Supply and Average Occupancy
Net absorption has been on a bit of a roller coaster during the last few years. More than 1,400 net units were absorbed from the end of August 2017 through August 2018. That demand was equal to about 8% of the existing units at the time. As a reminder, that represents 8% of conventional units in properties of at least 50 units. That fantastic result was followed by net absorption of only about 400 units in the following annual period from August 2018 through August 2019. In the most recent 12 months, the figure rebounded to around 1,100 previously unoccupied units that were leased.
In a year in which about 1,100 net units were newly rented, more than 700 new units were delivered. This is a slight increase from the previous 12 months but lower than in the annual period preceding that. Despite the new supply, and an already above-average occupancy rate, the market gained about 0.3% in average occupancy and crossed 94% to end August. The highest average occupancy is to the west, in the Nampa – Caldwell area. In the West Boise – Meridian region, the location of much of the recent new supply, average occupancy lagged a bit behind and was closer to 91% to end August.
Average Effective Rent and Concessions
Because Boise has been a high-growth area over the last handful of years, and also because the area is a smaller one from a multifamily perspective, the percent gains in average effective rent in recent years have been eye-popping. For the annual period ending in August of 2018, average collected rent rose by almost 8% per unit. For the 12-month period ending in August of 2019, that rate of growth touched 10%.
With numbers like that as a starting point, it is unsurprising that the area did not turn into negative territory over the last year. Annual rent growth for August 2020 was right at 4%, good enough for a spot in the top 20 markets. Interestingly, only one market of the top 20 for annual average effective rent growth had more than 1,000 conventional properties – Phoenix. It should be noted that while 4% average rent growth is a strong result given the events that period encompasses, that is a significant reduction from the previous annual periods.
One reason the Boise market was able to maintain the rent growth it did is that there was not the move toward lease concessions that we have seen in various areas of the country. Already a market not known for discounts, the availability of concessions dropped by 30% in the last year. At the end of August, less than 3% of conventional properties were offering a discount. The average concession value, calculated only from those propertied offering one, did tick up very slightly but remains at less than two weeks off as 12-month lease.
While there has been an increase in net absorption for the Boise market through the last 12 months compared to the previous annual period, demand is down 30% through the first eight months of 2020 compared to the same period in 2019.
More than half of the existing new construction pipeline for Boise is in a pre-construction phase. This gives decision-makers more flexibility than those in other markets where a greater share of projects have already broken ground.
Boise has been one of the fastest growing areas in the country in recent years. It has a well-diversified industry base for employment and enjoyed strong fundamentals going into this period of disruption. For these reasons, among others, the market should weather the 2020 storm relatively well compared to other markets.
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