Q3 2016 Review

The third quarter of 2016 has come and gone, and while some markets continue the torrid pace of rent and occupancy growth of the last few years, some markets are starting to feel the age of this recovery and experiencing diminishing returns. Here’s a look at the 24 states that we cover for the 3rd quarter of 2016.

Alabama has had a solid year with the 4 major markets absorbing over 1700 net rented units in the 3rd quarter. The 4th quarter of 2015 was lackluster but the markets have responded in 2016. Effective rents have risen every month in 2016 and are currently up an average of $29 per unit from the beginning of the year.

While the Little Rock metropolitan area struggled to maintain occupancy over the summer, the communities of Northwest Arkansas fared better. Annual absorption numbers look better with both markets having good absorption numbers and occupancy rate growth. Both markets also saw healthy increases of 1.4% in effective rents over the last 3 months.

The major Arizona markets continue to roll along. Over the last 12 months the Phoenix and Tucson markets have absorbed about 7500 net rented units. The Phoenix market accounted for about 5800 of those absorbed units, outpacing new construction and having occupancy grow 0.6% to 92.6%. Effective rents are slightly off last year’s torrid pace of double digit growth but both Tucson and Phoenix had hearty effective rent growth with 6.0% and 7.6% growth per unit respectively.

Even with some of the highest rents in the country, the California markets saw average effective rents rise 2.3% in just the last 3 months. Prices jumped 3.6% in the Sacramento area in the 3rd quarter but absorption was essentially flat. In the last year the California markets have absorbed over 20,000 net rented units though new construction has brought average occupancy down by 0.2% to 94.3%.

Colorado (Denver/Colorado Springs)
New Construction is still going with abandon in the Denver area. So, even with absorption of 1600 net rented units in the last quarter, average occupancy dipped 0.1%. Effective rents, however, are up a healthy 1.4% for the quarter and 4.4% over the last year.

Washington DC
Another hotbed of new construction, the DC area saw average occupancy drop 0.4% in the last three months. Though the market absorbed over 8,000 net rents units in the last year, the summer of 2016 only accounted for 440 of those units. This market may have seen its peak in the last year.

The Florida markets, too, have seen a huge spate of activity in new construction. They are seeing similar results in average occupancy as the pace of absorbed units begins to taper. Average occupancy in the state has dropped 0.5% in the last three months. Prices continue to rise as many of the Florida markets had price increases of 2.0% or more in the last 3 months. Melbourne in particular saw effective rents rise more than 10% over the last 12 months.

Atlanta and Savannah had a strong summer while the other markets did not fare as well in occupancy. In just the last three months, average occupancy in Atlanta has risen 0.8% to 92.6%. Price increases in Georgia were largely limited to Atlanta and Savannah as well, with average effective rent in just the last three months in those markets up more than 2%.

Chicago and Moline had a solid summer in 2016 though new construction nudged average occupancy in Chicago down 0.1%. Statewide, average occupancy is down 1.6% from a year ago.

Kansas (Wichita)
Wichita absorbed about 275 units in the last year with the summer of 2016 accounting for about 70 of those net rented units. With the introduction of new supply, however, average occupancy is down 1.4% from a year ago.

Kentucky (Lexington)
Lexington lost a net rented 102 units in the 3rd quarter and saw occupancy drop 1.3% to 92.2%. Overall occupancy is off 0.4% from a year ago.

Baton Rouge had an excellent summer while New Orleans fared the opposite and Shreveport remained flat. Occupancy jumped 2% in the 3rd quarter in Baton Rouge, which also had strong price increases over the summer months with effective rents rising more than 2% per unit.

Kansas City and St. Louis combined to absorb almost 1200 units in the 3rd quarter. Average occupancy dipped slightly to 92.2% because of new supply. On an annual basis, however, average occupancy is up from a year ago and more than 5,000 more units are rented now than a year ago.

The Mississippi markets lost a net 200 rented units in the last three months and average occupancy in the state dropped half a percent to 92.7%. Gulfport/Biloxi saw rents climb 1% in the last quarter while Central Mississippi saw rents drop slightly over the last three months.

North Carolina
All of the North Carolina Markets except Wilmington had good absorption in the 3rd quarter. Each of the North Carolina markets also had solid rent gains with Wilmington and Asheville seeing rents climb more than 3% over the summer.

New Mexico (Albuquerque)
Albuquerque had basically flat absorption for the last three months, yet saw rents jump 2.4% over the same time frame. Annual absorption is still well up from a year ago with more than 800 units rented than this time last year.

Las Vegas had a good summer with more than 550 units absorbed, though it is off the annual pace of 3,500. Reno had flat absorption in the 3rd quarter, yet still has more than 800 units currently leased than a year ago. Over the last three months, effective rents have jumped 3.6% per unit in Reno and are up a respectable 1.5% in Las Vegas.

Oklahoma City is bouncing back from the energy sector woes and absorbed over 900 net rented units in the last 3 months. Tulsa, however, lost a net 32 rented units. Effective rents have fallen 0.7% in Oklahoma City and 0.4% in Tulsa over the summer.

Pittsburgh had a great quarter with a net 821 units absorbed, pushing average occupancy up to 91.5%. Philadelphia absorbed a net 625 units yet new construction drove down average occupancy.

South Carolina
Charleston had a great quarter with occupancy rising 2.7% to 92.7%. Effective rents in Charleston also rose 1.5% in the same time frame. Greenville-Spartanburg also had good absorption of 304 units, yet effective rents are off 0.9% from the end of the 2nd quarter.

The Tennessee markets continue to perform well after lagging the other markets in the early stages of the recovery. All of the Tennessee markets had good absorption over the summer with only Nashville having absorption lag behind new supply. Effective rents are up 2.2% statewide from three months ago with Nashville seeing rent increases in the 2.8% range.

Only El Paso, Abilene and Wichita Falls had negative absorption for the quarter. Even Midland-Odessa was able to absorb newly rented units. Austin, Houston and San Antonio had solid gains in absorption while Dallas-Fort Worth has seen its rapid absorption gains start to taper. Statewide, effective rents are up 1% from three months ago with San Angelo, Lubbock and Amarillo seeing rent gains in the 2-3% range over the quarter.

Utah (Salt Lake City)
Salt Lake City had a good quarter with occupancy up 1.1% from three months earlier. Effective rents are also up a robust 2.1% in the same period.

Norfolk and Richmond had solid absorption in the 3rd quarter, but new construction is holding down occupancy gains. Roanoke, on the other hand, lost about 200 net rented units in the quarter. Effective rents are up slightly in Norfolk, but are down in Richmond and Roanoke, bringing the statewide average for effective rent down 0.2% from the beginning of the quarter.

While states like Tennessee, North Carolina and Arizona continue to fare well, some markets in states like Texas and Florida seem to be a victim of their own success and are losing occupancy as new construction continues to pour into the market. The 4th quarter of 2016 may be a turning point for a few other markets as well.