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May 17, 2016
Rents Rose Despite More Vacancies
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The U.S. Census Bureau’s apartment vacancy rate for all rental apartments (in buildings with 5 or more units) rose 40 basis points (bps) in the first quarter of 2016–but fell 10 bps from the first quarter of 2015–to 7.4 percent. This was the lowest 1Q rate recorded by Census in 32 years.

MPF Research’s national vacancy rate for investment-grade apartments rose 10 bps to 4.2 percent in 1Q 2016. This marks a 30-bps decrease from a year earlier and the lowest 1Q vacancy rate recorded since 2001.

The vacancy rate ticked up slightly in all regions except for the West, where the rate remained unchanged at 3.6 percent. Still, in both the West and South, vacancy rates stood at their lowest 1Q level in ten years. The Midwest’s vacancy rate of 4.0 percent was the lowest 1Q rate in 15 years.

 


Multifamily Starts, Completions and Permits Fell

Multifamily permits (5+ units in structure) fell to a seasonally adjusted annual rate (SAAR) of 391,000 in the first quarter, down 14.7 percent from last quarter and 1.3 percent from 1Q 2015.

Starts decreased by 10.9 percent from the previous quarter to a SAAR of 327,000, marking a slight year-over-year increase of 1.0 percent.

Completions rose 27.6 percent from the year prior to 313,000 (SAAR), although they were down 3.6 percent from 4Q 2015 and 6.8 percent from 3Q 2016, the 26-year high-water mark.



Multifamily Absorptions Up Seasonally During Quarter

Net absorptions of investment-grade, market-rate apartments tracked by MPF Research increased to 33,539, a pickup from the seasonally weak 1,161 units absorbed in 4Q 2015. The trailing four-quarter sum fell by 5.4 percent to 234,420 units from the fourth quarter and by 23.2 percent from a year earlier. This marks nine consecutive quarters in which the trailing four-quarter sum was more than 200,000.


Apartment Rents Continued to Increase

Same-store apartment rents for professionally managed apartments tracked by MPF Research rose 5.0 percent year over year in 1Q 2016, 20 bps higher growth than last quarter and 50 bps higher than a year earlier.

Both South and West regions recorded accelerated rent growth in 1Q 2016, up 20 bps and 50 bps, respectively, from the previous quarter. The West’s rent growth of 7.1 percent marked the highest 1Q rate for the region since 2001. Rent growth in the Midwest remained unchanged for the second consecutive quarter at 3.5 percent, while growth in the Northeast tapered slightly by 10 bps to 3.2 percent.

The CPI rent index, which covers all rental housing, rose by 3.7 percent for the second consecutive quarter, up 20 bps from the growth in 1Q 2015. This marks the highest 1Q rent increase since 2008.



Transaction Volumes Fell, But Remained Near Record Highs

In the apartment transaction market tracked by Real Capital Analytics, sales volume decreased 25.6 percent from last quarter’s record level to $38.6 billion, but still marking a 12.3 increase from a year prior and the second highest transaction volume recorded since records began in 2001.

The market value of investment-grade apartments, as measured by the National Council of Real Estate Investment Fiduciaries (NCREIF), rose 0.7 percent from 4Q 2015 and 6.0 percent from a year ago. The NCREIF transactions-based index (TBI), which uses only transaction prices, not appraisal prices, increased 3.8 percent from last quarter and 8.1 percent from a year earlier.

Cap rates fell slightly from the fourth quarter of 2015 to a record low of 5.7 percent.


Growing Share of New Units in Bigger Buildings

A record 48 percent of all newly completed multifamily units in 2014 were in buildings with at least 50 units in them. This share had been rising steadily from its low point in 1995 through 2010 but then dipped sharply in 2011. That dip was likely a lagged consequence of the recession and financial crisis and has been more than offset by a rebound over the last three years.

(Note that the latest data from the Census Bureau’s “Annual Characteristics of New Housing” are for homes completed in 2014.)

The Northeast remains the region with the highest share of units in larger buildings, with 57 percent of units completed in 2014 were in buildings with 50 or more units. While the other regions historically had much lower shares of units in big buildings, that’s changing.

The West, for example, has all but caught up with the Northeast. In 2014, its share of units in big buildings was 54 percent. However, it’s important to note that its share previously exceeded that of the Northeast from 2004 through 2010. Increases in the share of units in larger buildings has also been seen in the South (45 percent) and the Midwest (38 percent).

This concentration is much higher for apartments than for condos. The share of apartments completed in 2014 in 50+ unit buildings was 49 percent, while the condo share was only 22 percent.

About Market Trends
Market Trends is a high-level quarterly summary of key trends in the industry for apartment executives. Each issue features the latest data on demand and supply trends for apartment residences, along with vacancy rate, absorption and rent trends. In addition, coverage includes an overview of the apartment transaction market with data on apartment sales volume and pricing. Each issue also contains a special analysis of an important and timely trend.
Questions & Comments
Questions or comments on Research Notes should be directed to Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist, at mobrinsky@nmhc.org or 202/974-2329.
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