view in browser
Apartment Rent Growth Moderates
Tucker, Michael
Apartment rent growth moderated but remained healthy in August after a slight uptick in early summer, reported Axiometrics, Dallas.

Annual effective rent growth measured 3.2 percent for the month, down from 3.41 percent in July, said Jay Denton, vice president of research with Axiometrics. He said the annual growth rate peaked at 5.32 percent in June 2011.

“In line with slowing annual effective rent growth at the national level during August, Class A and B properties also showed signs of moderation for the month,” Denton said. Both Class A and B properties’ annual effective rent growth decreased, falling from 3.70 percent to 2.95 percent and 3.43 percent to 3.24 percent, respectively.

Denton said apartments’ occupancy rate increased to 94.9 percent in August and 54 of the top 88 metropolitan statistical areas now have an average occupancy rate above 95 percent. But as always, some markets outperform others. “As the third quarter comes to an end, concern remains about which metropolitan statistical areas will become oversupplied due to supply increasing more than demand or job growth,” he said, citing Dallas and Raleigh, N.C. as markets worth watching.

Apartment rental revenue has improved over the past three years as occupancy rates have increased and apartment markets have tightened, reported Freddie Mac, McLean, Va. Freddie Mac Chief Economist Frank Nothaft said he expects cap rates to gradually move higher in the coming year as long-term yields move higher, “and rents are likely to outpace overall inflation, leaving apartment values firm and on solid ground.” 

Nothaft said apartment cap rates have fallen 35 percent over the past decade, a major reason that property values have increased.

“The decline in cap rates and growth in rents (adjusted for inflation) are key fundamentals that explain the rise in apartment values over the past decade,” Nothaft said. “Seen through this lens, the rise in property values appears to be consistent with overall economic forces, and the slower appreciation over the past year reflects the bottoming of cap rates.”