Nationally, the multifamily market performed well in the third quarter of 2017 with average occupancy for conventional properties rising 0.4% to 92.2%. However, compared to this time last year average occupancy is down 0.4% as new construction outpaced absorption in many markets. Effective rents are up 0.7% over three months ago to $1.39 per square foot and $1246 per unit. Compared to the end of Q3 2016, effective rents are up a healthy 6.1%, though some markets are seeing a slowdown in rent growth. Here a look at the different regions and how they fared in the quarter.
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Washington/Oregon
Seattle added more than 1000 units to the market and still saw occupancy rates rise almost 0.5% to an average of 92.7%. Spokane, on the other hand, saw average occupancy drop more than 1%. Portland had a good quarter as occupancy rose from 92.3% to 92.8%. Effective rents in Portland and Seattle each rose about 1% in the quarter.
California
The San Francisco Bay area and Sacramento each had healthy occupancy gains with increases of 0.4% and 0.7% respectively. Meanwhile, the San Joaquin Valley and San Bernardino/Riverside markets saw occupancy drop 0.4% and 0.3% respectively over the last three months. Los Angeles and the Central Coast had average occupancy tick up 0.1% in the 3rd quarter. Sacramento, The San Joaquin Valley and the Central Coast all had very positive rent gains with average rents rising more than 1.5% over the summer. The other California markets had solid rent gains in the 1-1.5% range.
Arizona/Nevada/New Mexico
Phoenix added more than 1500 units while Las Vegas added about 500. Both markets did a good job of absorbing the new units and holding average occupancy steady at 92.3% and 92.8%, respectively. Occupancy in Tucson rose a full percentage point to 93.3% while Albuquerque had occupancy gains of 0.4% to 95%. Reno still has nearly full occupancy at 96.1%. With the exception of Flagstaff, all the markets in the region saw robust rent gains in the 3rd quarter. Effective rents in Flagstaff fell almost 1% while Reno, Las Vegas and Tucson all saw rent gains of more than 2%. Meanwhile, Phoenix and Albuquerque had rent gains in the 1-2% range.
Top 10 'Tier 1 Markets' Quarterly Effective Rent Change| Market | End of Jun-2017 | End of Sep-2017 | % Change |
|---|---|---|---|
| TN - Nashville | $1,121 | $1,151 | 2.6% |
| TX - Houston | $1,016 | $1,042 | 2.5% |
| NV - Las Vegas | $942 | $965 | 2.4% |
| CA - Sacramento | $1,316 | $1,340 | 1.9% |
| FL - Tampa | $1,108 | $1,126 | 1.6% |
| FL - Orlando | $1,173 | $1,192 | 1.6% |
| MN - Minneapolis - St. Paul | $1,179 | $1,197 | 1.5% |
| AZ - Phoenix | $973 | $987 | 1.5% |
| GA - Atlanta | $1,123 | $1,139 | 1.4% |
| CA - Los Angeles | $2,059 | $2,087 | 1.4% |
Idaho/Utah/Montana/Wyoming/Colorado
The statewide average occupancy in both Montana and Wyoming rose more than 2%. The Denver/Colorado Springs market added more than 1000 units and absorbed those and then some, also seeing average occupancy rise almost 1% to 91.9%. Salt Lake City added several new properties in the quarter and still had an occupancy gain of more than 1% to 92.7%. Montana and Idaho had effective rent gains of more than 1.5% over the last three months while Denver and Salt Lake City fell just short of 1% rent growth in the same period.
North Dakota/South Dakota/Nebraska/Iowa/Kansas
Des Moines added a few properties to the market and occupancy kept pace at 91.1% for the quarter. Bismarck displayed an impressive jump in occupancy over the summer while Fargo declined slightly by 0.2% to 89.7%. While Rapid City is holding strong at more than 95% occupancy, Sioux Falls has declined to less than 90% average occupancy. Lincoln added to its already strong occupancy numbers, rising 1% to an impressive 96.3%. In Omaha, average occupancy rose to an even 94% in the 3rd quarter. Wichita had negative absorption of about 100 units and average occupancy declined 0.5% to 91.6%. Rapid City, Fargo and Des Moines all had negative rent growth in the quarter, while Lincoln, Omaha and Sioux Falls all had rent growth in the 1% range.
Oklahoma/Louisiana/Arkansas/Missouri
While Columbia had negative absorption and negative occupancy growth, Kansas City added nearly 1000 units to the market and still saw average occupancy grow by 0.3% in the quarter. New units in Northwest Arkansas pushed average occupancy into the low 80’s while Little Rock had occupancy increase by more than 1% to 91.9%. Oklahoma City and Tulsa are starting to rebound and both saw occupancy gains in the quarter. Shreveport dipped below 90% in the quarter while Lake Charles got a big boost in occupancy to 92.8%. New Orleans had negative absorption of almost 250 units and consequently occupancy fell 0.6% to 93.4%.
Statewide in Oklahoma, rents rose approximately 1.5% over the quarter. With the exception of Columbia, the Missouri markets had solid rent gains above 1%. The new units in Northwest Arkansas drove up average rents in the quarter more than 1.5%. Monroe and Baton Rouge had rent declines in the quarter while Shreveport stayed flat and New Orleans and Lake Charles had significant increases in rents.
Texas
The Texas markets added more than 12,000 units over the 3rd quarter. Even with all the new units added, the only Texas markets to experience noteworthy negative occupancy growth were College Station and Lubbock. Competition in Austin is heating up and average rents fell 0.7% to $1210 per unit. Laredo and Texarkana saw modest decreases of a few dollars per unit over the summer. Hurricane Harvey took its toll and damaged almost 15000 units, but that managed to push average occupancy up 1.8% to 89.1% as the displaced tenants were reabsorbed elsewhere in the market. Rents in Houston also spiked up more than 2.5% to an average of $1042 per unit.
Minnesota/Wisconsin/Illinois
Average occupancy in the Minneapolis/St. Paul market rose about 0.5% to 95.9%. In Wisconsin, both Green Bay and Milwaukee held steady in occupancy while Madison declined by 2%. Occupancy movement in Illinois during the quarter was a bit of a mixed bag. Both Chicago and Peoria suffered a decline of about 1%, while Springfield and Moline each increased by 0.2% in the period. Statewide, Minnesota and Wisconsin saw positive rent growth with Minneapolis/St. Paul leading the way at over 1.5% gain. While Chicago and Springfield experienced negative rent growth, Moline and Peoria both exceeded 1% growth.
Michigan/Ohio/Indiana
Detroit, Indianapolis and Cincinnati all added new units in the latest quarter and absorbed enough of those new units to raise occupancy. Fort Wayne and Evansville, however, had flat absorption for the quarter so the additional units drove occupancy downward slightly. Even with the new units Evansville saw the average price per unit drop $8 to $720. Indianapolis and Columbus both had rent gains north of 1% in the 3rd quarter while Cincinnati and Detroit fell just shy of 1% in effective rent increase.
Kentucky/Tennessee/West Virginia
While Nashville added more than 1500 units to the market and absorbed them all to bring occupancy up to just under 90%, Chattanooga had flat absorption in the quarter and the new units pushed occupancy down to 92.3%. Memphis, Knoxville and Lexington all had good absorption over the summer and had occupancy gains of more than 1.5%. Charleston was the only market in these states to have negative rent growth in the quarter. Newer Class A units in Nashville drove rents up $30 per unit to $1151 in the last three months. Chattanooga also had strong rent gains with the average unit climbing $11 to $874.
Virginia/DC/Maryland
The DC area had a good summer with more than 2500 units absorbed in the 3rd quarter and average occupancy climbed 0.6% to 92.9%. Baltimore, on the other hand, absorbed about half of the new units that came online, dipping their occupancy to 92.2%. Roanoke showed strong occupancy gains of more than 1.5% to 94.2% though effective rents dropped slightly to $815 per unit. Baltimore and Richmond, however, each had effective rents increases of more than 1%.
Bottom 10 'Tier 1 Markets' Quarterly Effective Rent Change| Market | End of Jun-2017 | End of Sep-2017 | % Change |
|---|---|---|---|
| TX - Austin | $1,218 | $1,210 | -0.7% |
| NY - New York City | $2,501 | $2,491 | -0.4% |
| IL - Chicago | $1,513 | $1,508 | -0.4% |
| OH - Cleveland/Akron | $825 | $823 | -0.3% |
| TX - San Antonio | $945 | $949 | 0.4% |
| MA - Boston | $2,209 | $2,220 | 0.5% |
| FL - Miami/Ft Lauderdale | $1,583 | $1,592 | 0.6% |
| DC - Washington | $1,727 | $1,739 | 0.7% |
| CA - San Francisco/Oakland | $2,600 | $2,619 | 0.7% |
| OR - Portland | $1,310 | $1,321 | 0.8% |
Mississippi/Alabama/Georgia/South Carolina/North Carolina
Savannah, Asheville and Charleston added new units and failed to absorb enough to maintain their average occupancy and each saw a decrease of more than 1%. All of the Tier 1 markets like Charlotte, Raleigh-Durham and Atlanta added new units – and absorbed them as well – and had positive occupancy gains in the summer months. Greenville-Spartanburg had strong absorption and rent gains; occupancy jumped to more than 91% during the quarter and effective rents rose more than $15 to $907 per unit. Only Mobile and Gulfport/Biloxi had negative rent growth in the quarter. Besides Greenville-Spartanburg, other strong performers in rent gains were Charleston, Macon and Huntsville.
Florida
Several Florida markets underperformed in occupancy with Jacksonville, Melbourne and Tallahassee all declining about 0.5% in the last 3 months. Conversely, the Orlando and Tampa markets added more than 1000 units each and still had occupancy gains over the summer. Miami added close to 2000 units and absorbed nearly 1900 net units, so occupancy dipped slightly. Alternatively, effective rent gains were solid across the state. Most of the markets saw rent gains of 1% or more and even Miami, bringing up the rear, experienced 0.5% growth in effective rents.
Pennsylvania/New York/New Jersey/Delaware
Pittsburgh and Philadelphia both had strong absorption in the 3rd quarter and occupancy climbed more than 1% in each region. New York City had good occupancy numbers as well, with absorption of about 7500 units to bring average occupancy back over 90%. However, average rents in the New York City region dipped slightly to go back under $2500 per unit. Most of the other markets in the region had healthy rent increases of about 1% though State College only saw a modest increase in prices of about $2 per unit.
Connecticut/Rhode Island/Massachusetts/New Hampshire/Vermont/Maine
Hartford and Boston stand out with occupancy gains just over 1%, while the remainder of the region experienced flat or slightly declining average occupancy. The cause does not appear to be the delivery of new units, but rather, flat absorption. Springfield was the lone market to see effective rents decline, whereas Vermont and Rhode Island saw gains of about 1.5%. Average effective rent in the greater Boston area rose by $11 to $2,220 per unit in the quarter.
Conclusion
In general, while many markets are still performing well, we are starting to see some markets underperforming in the summer months when compared to prior years. For the first time in many years, we’re seeing rent decreases in the 3rd quarter across multiple regions. Because the 2nd and 3rd quarters are typically the strongest performers, the slight decreases in effective rents in some markets are noteworthy. While this is not a sign of impending disaster, the multifamily sector may be a victim of its own success, and competition in some areas will make occupancy and rent gains harder to come by than in years past.
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