The combination of healthy job growth creating steady demand, coupled with slightly less new construction than expected, has resulted in a balancing act between supply and demand for the multifamily sector.
Despite all evidence to the contrary, vacancy rates for multifamily have not risen substantially. The national vacancy rate increased only slightly by 10 basis points to 4.5% in Q3, and 40 basis points year-over-year, according to REIS’ Q3 2017 Apartment Trends report.
Although new supply was thought to be staggering, construction in Q3 was 47,271 units. (According to CoStar, this is the lowest total quarterly completion number in five quarters.) This number may see revision after the effects of the Hurricanes Harvey and Irma have been fully assessed. Net absorption was slightly lower at 31,352 units, which is the reason vacancy ticked up slightly.
In addition to only a subtle shift upwards in vacancy, rent growth is healthy and the narrowing gap between asking and effective rent growth indicates lessening of landlord concessions. “The underlying strength in the apartment market was confirmed by the rent growth rates,” said REIS economist Barbara Denham.
The average asking rent grew 1.0% in the quarter, 10 basis points lower than the average quarterly growth rate for the prior six quarters of 1.1%. Similarly, effective rent growth was 0.9%, 10 basis points lower than the average quarterly effective rent growth for the prior six quarters of 1.0%, reported REIS.
Nationally, effective rents rose 2.6% year-over-year, according to RealPage. “Annual rent growth has been holding between 2.5% and 3% this year, after the pace of pricing increases slowed notably as new product completions ramped up in calendar 2016. Typical monthly rent across the country’s 100 largest metros is now $1,316,” said the RealPage report.
The markets with the strongest rent growth continue to be those with significant construction combined with a balance of net absorption, according to REIS.
156,000 jobs were created in August and the unemployment rate was 4.4% according to Axiometrics' latest Jobs Report. “Total nonfarm payroll employment was little changed in September (-33,000), after adding an average of 172,000 jobs per month over the prior 12 months,” according to the U.S. Bureau of Labor Statistics. This is the first time in seven years that the U.S. economy has reported a monthly job loss due to a temporary disruption in hiring as a result of Hurricanes Irma and Harvey, reported Axiometrics.
Atlanta has consistently appeared in the Top 5 annual job gains markets and is currently Number 2 with 86,400 jobs gained over the last 12 months.Atlanta is 7th in the U.S for annual effective rent growth (5.9%). The metro saw a 1.6% effective rent growth in Q3 2017 and the average effective rent is $1,044, according to REIS.
In Q3, vacancy in Atlanta decreased 10 basis points to 4.4%, according to REIS. This is an annual increase of 80 basis points. According to CoStar, net absorption in Q2 and Q3 of 2017 represented the strongest back-to-back quarters in Atlanta this cycle.
CoStar’s forecast is more than 700,000 units will deliver nationally over the next three years, or more than 50,000 per quarter. “Still, some perspective is in order: These totals fall below the construction waves of the 1960s, 70s, and 80s, when developers completed more than 100,000 units per quarter on average as the Baby Boomer generation came of age,” said Market Analyst, John Affleck in CoStar’s Q3 National Apartment Market Analysis and Forecast.
Essentially, it is a unique time for the multifamily market where supply and demand are aligned for the foreseeable future and experts agree the apartment market is strong and healthy.
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