Q1 2016 Review

Though it may not look like it, 2016 may turn out to be a lot more challenging for multifamily than in recent years past. New construction has run rampant in many markets and while absorption continues to be positive the rate of growth is slowing in many markets. As a victim of their own success, many markets may find in 2016 that there are just not enough new renters to fill the new units coming on. We may finally see increases in concessions in markets that thought those were a thing of the past. Here’s a closer look at the first quarter of 2016 in the 14 states that we cover for rents and occupancy.

Alabama had a stellar Q1 by absorbing over 2300 net rented units. Of the four major markets in the state, only Montgomery had flat absorption in the quarter. Huntsville absorbed nearly 900 net rented units while Birmingham and Mobile absorbed nearly 700 units each. Overall occupancy in the 4 metro areas grew 1.3%. Effective rents were up a healthy 1.6% per unit with Mobile leading the state with 2.1% effective rent growth in the last 3 months.

Phoenix absorbed almost 2800 net rented units and Tucson absorbed another 800 to give Arizona a phenomenal start to 2016. Overall occupancy in the state jumped 1.2% to 92.9%. Average effective rent per unit, too, rose a whopping 2.8% in the quarter. With numbers like these 2016 is looking quite promising for the Arizona markets.

Arkansas absorbed over 900 units in the first 3 months of 2016. Overall occupancy, however, slipped 0.3% to an average of 91.3% as new supply outpaced absorption. Effective rent per unit rose a nice 1.7% in the quarter to an average of $665 per unit in the metro areas of the state.

Denver had a nice first quarter by absorbing over 2300 units. Even with all the new construction in this market, average occupancy rose 0.7% to 92.4% The average unit in Denver now nets $1260 which is 1.2% higher than at the beginning of the year.

At first glance, the nearly 4500 units absorbed in the 10 major Florida markets would appear to be good news. However, this time last year they absorbed more than double that amount in the prior 3 months. Fortunately, new supply growth abated somewhat and cumulative average occupancy rose 0.3%. Fort Myers/Naples and Palm Beach led the way in absorption while Jacksonville, Melbourne and Pensacola had basically flat absorption. Effective rent growth was strong in the state, averaging 1.8% in the ten markets for Q1. Gainesville, Tampa and Miami all saw effective rent per unit rise more than 2% in the last 3 months.

With the exception of Albany, the six Georgia markets we track all had a solid first quarter. Overall, they combined to absorb over 3200 net rented units. Atlanta had an outstanding quarter by accounting for 2600 of those net rented units. Effective rent growth, too was exceptional. Overall average effective rents per unit grew 2% in the first quarter. Only the Columbus market had no rent growth in the quarter while Atlanta and Augusta, topped 2.2% growth.

Cumulatively, the three Louisiana markets absorbed 364 net rented units and saw occupancy climb 0.4% to an average of 91.4% in the state. However, the lion’s share of growth was in Baton Rouge with about 320 units absorbed while Shreveport gained over 100 net rented units and New Orleans lost about 90. Baton Rouge, however, saw effective rent drop 0.7% in the first quarter while in New Orleans effective rent per unit jumped 2.5%.

Like Alabama, Mississippi had a very nice first quarter in 2016. Average occupancy rose 1.2% to 92.5%. Average effective rent per unit rose an astounding 2.4% in the Gulfport/Biloxi market while Central Mississippi had a nice 1.7% increase in the first 3 months of the year as well.

New Mexico had an outstanding quarter with average occupancy rising 2.0% and over 900 more units leased at the end of March than at the beginning of the year. Effective rents however only nudged up 0.6% in the same time frame. Look for rents growth to be much more aggressive in the next 2 quarters of 2016.

New Construction has really taken off in North Carolina and while absorption numbers were solid in several markets, they are well off the pace of last year. The six multifamily markets we track in North Carolina managed to absorb over 1800 units in the first quarter of 2016, but in 2015 they absorbed over 4500 units for the same time frame. Wilmington and Greensboro/Winston-Salem actually had negative absorption for the quarter while Charlotte, Fayetteville and Raleigh-Durham absorbed over 500 units each. Effective rents in the North Carolina markets rose sharply, averaging 1.9% growth in the quarter. Charlotte and Wilmington led the way with 2.6% and 2.2% growth respectively. Asheville managed only 0.6% effective rent growth though it still remains the highest in the state.

Though late to the game in the recovery, the Nevada markets are progressing nicely now. The Las Vegas market absorbed over 900 net rented units and still saw average occupancy in the market rise 0.3% in the first quarter. Furthermore, effective rents rose 1.7% in the first 3 months of 2016 as well. This market seems to have the nice mix of new construction and absorption going forward in 2016.

Aside from North Dakota, Oklahoma seems to be the one state bearing the worst from the drop in oil prices. The Oklahoma and Tulsa markets combined to only manage about 50 more rented units at the end of the quarter than at the beginning. Effective rents did manage to climb a respectable 1.0% in the quarter.

Like North Carolina, new construction outpaced absorption so even though the 3 markets in South Carolina absorbed over 300 net rented units, average occupancy still fell 1% in the first quarter. Charleston saw the greatest absorption while Columbia experienced negative absorption in the quarter. The new units, however, contributed significantly to the average effective rents and average rents in the 3 markets rising 3% per unit to an average of $907.

The four Tennessee markets combined to absorb over 2000 net rented units but the markets experienced wildly divergent outcomes. Memphis seems on the way to recovery by absorbing over 1100 units. Nashville also had a good quarter, absorbing nearly 1400 units. However, Knoxville had negative absorption of several hundred units while Chattanooga had essentially flat absorption. Overall, between the 4 markets average effective rents climbed 1.6% in the quarter. Knoxville outpaced the other markets with 2.3% effective rent growth per unit to an average of $816. Nashville still boats the highest rents in the state with the average unit netting $1052.

While the larger Texas markets held their own, some of the smaller markets had a more disappointing quarter. Overall, the 13 Texas markets we cover managed to absorb nearly 13,000 units in the last 3 months. Almost half of that was in the Dallas/Fort Worth Market alone. Markets Like Corpus Christi, Lubbock and Waco/Temple/Killeen lost more than 100 net rented units each. Austin performed well by absorbing about 1300 units while Houston continues to struggle, adding about 1100 net rented units in the quarter. Average effective rent for all the markets rose 1.1% to a statewide average of $995 per unit. Midland-Odessa saw effective rents drop almost 7% in the quarter. Longview, Corpus Christi and Abilene all saw small declines in average effective rent. College Station, Austin and San Antonio all had strong rent gains in the quarter.

Even with the absorption of over 1100 units in the quarter, the Salt Lake City market saw average occupancy drop 0.4% to 93.3%. Even with the introduction of these new units, however, average effective rent only rose 0.9% in the quarter to $952 per unit.

It will be interesting to see if the southeastern and western states can keep up their momentum for all of 2016. I have a feeling some of the Texas and Florida markets may have already peaked in average occupancy, especially as new units keep coming on the market in 2016 at a faster than ever pace.