Rental Market: Occupancy Rates On the Rise

By PlanetLaundry staff | Oct 01, 2010

Occupancy rates and effective rents in U.S. apartments continued to climb sharply during the third quarter, according to information just released by MPF Research, a division of RealPage.

Preliminary results from the firm's third-quarter survey show that national apartment occupancy now is up to 93.9 percent. The performance improved by 0.5 percentage points during the third quarter, and occupancy has firmed by 2.1 points since bottoming at the end of 2009.

Effective rents have increased by 1.2 percent since the middle of 2010. Year-to-date rent growth is at 2.6 percent.

The apartment sector's occupancy and rent upturns reflect that demand is surging at the same time that deliveries are slowing. Demand for 68,000 units was posted in the July-September time frame, the MPF Research analysis says. Absorption in 2010 through the third quarter totaled 283,000 units, one of the most robust tallies recorded during the past two decades. Apartment stock additions during the third quarter were limited to about 12,000 units, and new supply finished during the initial nine months of the year was held to approximately 48,000 units.

"While sluggish employment growth has triggered only mild new household formation, apartments are capturing a disproportionately large share of total housing demand," said Greg Willett, MPF Research's vice president of research and analysis. "That pattern is likely to be sustained for a while, in part because current mortgage qualifications standards have made it tougher to buy a home. Expansion of the country's population of young adults, who tend to favor renting over ownership, also is working in the apartment sector's favor."

Apartment rent growth during recent months has been strong enough to get pricing changes into positive territory on an annual basis across three-fourths of the 64 metros that form the core of MPF Research's national coverage. Most remaining markets have seen rents stabilize. The nation's strongest rent growth during the past year has occurred in El Paso, Texas, where rates are up 11.7 percent. Quite a few additional markets register year-over-year pricing increases in the range of 4 percent to 5 percent, with the list including Albuquerque, Baltimore, Miami, New York, Pittsburgh, San Jose, Washington, D.C., and West Palm Beach.

On the flip side, Las Vegas is the one spot still suffering a notable decline, with rents as of September off 6.3 percent from year-earlier pricing. Dips near 1 percent remain in place across Atlanta, Houston, Phoenix, Salt Lake City, Seattle and Tampa.

Look for the apartment sector to finish 2010 on a strong note, according to MPF Research.

"While occupancy has a tendency to backtrack a little during fourth quarter, that's in large part because seasonally slow leasing activity doesn't keep pace with completions," Willett said. "But this year, with only a handful of units coming online during the fourth quarter, occupancy is more likely to hold up."