Any concerns that a strengthening housing market could negatively affect an oversupplied multifamily market can be put to bed.
As housing prices soar, more and more people continue to rent. As we reported in last quarter’s Market Update, Steady Demand Continues for Multifamily: “One of the main drivers of escalating home prices is a lack of supply of homes on the market. In contrast, an excess supply of new apartments under construction is easing pressure on rent growth,” said REIS economists in an article for The National Real Estate Investor.
However, not only do higher home prices mean steady demand for multifamily, new supply has recently slowed. New supply was 36,477 units in Q2, (the lowest quarterly addition in over two years). As a result, landlord concessions are down. This is reflected in the growth seen in effective rents. The average effective rent grew 1.1% in Q2 2017 and 3.0% over the year.
In fact, the story for Q2 2017 seems to be the consistency in rent growth. In Q1, 23 metros posted a rent decline. In Q2, all but two metros saw an increase in effective rent. The even better news is that “markets with the strongest rent growth are those with significant construction along with a balance of net absorption,” according to REIS’ Q2 2017 Apartment Trends report. The average U.S. apartment rent is $1,335 per unit, reflecting a 1.3% increase in the quarter, (the strongest quarterly increase in four quarters).
The vacancy rate increased 10 basis points in Q2 to 4.4%. Vacancy rates increased in 27 of the 79 metros that REIS tracks, down from 39 metros that saw a vacancy rate increase in Q1. Net absorption was 27,818 units in the quarter.
Not only is the multifamily market doing better than expected, so is the job market.222,000 jobs were added in June and the unemployment rate was 4.4%, according to the U.S. Bureau of Labor Statistics. This is the second-highest monthly gain in job growth this year. Annual job growth remained at 1.6%, only 10 basis points (bps) less than June 2016. Annual job gains were 2.238 million, reported Axiometrics. Job growth has accelerated in 22 metros this year.
Nationally and locally, the new supply scare is off. Axiometrics goes as far as to call it a “myth” that too much supply has been added and that supply levels are “reaching more of a plateau than a peak.” In fact, 4.6 million new apartments are needed by 2030 to meet demand, according to “Vision 2030,” a report released in June by NAR and the National Multifamily Housing Council. “The expected strong construction in most markets is affecting rent growth and vacancy rates but with less of an impact than had been expected,” said REIS.
The Southeast, in general, has experienced the greatest population growth in the United States over the last three to four years, according to The National Real Estate Investor. The same article cites a prediction by Moody’s that “the demographic shift will intensify over the next few years, with the Southeast realizing the greatest population gains in the nation.”
Atlanta is 7th in the U.S for annual effective rent growth (5.6%). The metro saw a 1.5% effective rent growth in Q2 2017 and the average effective rent is $1,023, according to REIS. Atlanta is Number 3 nationwide for jobs gained with 81,900 jobs gained in the past 12 months. Vacancy in Atlanta increased 10 basis points in Q2 to 4.4%. This is an annual increase of 70 basis points.
Overall, the coast is clear for the multifamily market to enjoy continued success and especially in the Southeast.
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