The U.S. apartment sector posted impressive revenue growth of 5.8 percent in calendar 2011, according to MPF Research, an industry-leading market intelligence division of RealPage, Inc. (NASDAQ: RP). National occupancy climbed 1.1 percentage points during the year, and effective rents jumped 4.7 percent.
"While apartment demand has cooled off a bit from 2010's incredibly large volume, it remains very strong," said Greg Willett, MPF Research vice president. "Most of the jobs being formed are going to young adults, who tend to be renters. At the same time, loss of renters to purchase continues to run far below the historical norm. Those factors are combining to produce demand far in excess of the limited deliveries coming on stream right now, especially when today's completions are heavy on niche product such as affordable housing, seniors housing or student properties, rather than conventional, market-rate apartments."
Occupancy registered at 94.6 percent as of the fourth quarter, up from 93.5 percent a year ago and from 91.8 percent when the market's performance bottomed in late 2009.
Rents in U.S. apartments grew 4.7 percent during 2011. The total increase seen since pricing hit its low point in late 2009 is 7 percent.
There's generally a seasonal slowdown in apartment leasing activity specifically during the fourth quarter, so shifts in occupancy and rents tend to be small during the period. Occupancy edged down a slight 0.2 percentage points on a quarterly basis in late 2011, while effective rents inched up a minor 0.2 percent.
The fourth quarter did bring some regional shifts in momentum that look like signs of what's to come in select markets during 2012, most notably across the Pacific Northwest and in Texas.
San Jose and Seattle, previously among the nation's best performers, logged revenues losses late in the year that went well beyond normal seasonality. The quarterly decline in revenues was 1.8 percent in San Jose and 1.5 percent in Seattle. "The backtracking seen during the fourth quarter in parts of the Pacific Northwest likely reflected a correction of pricing that got a little too aggressive earlier in the year," Willett said. "We anticipate substantial rent increases in these markets moving ahead, but the Pacific Northwest metros probably won't outperform other parts of the country to the degree that was seen over the past couple of years."
On the other hand, metros in Texas avoided the mild revenue losses that are normal there during the fourth quarter. Revenues jumped 1.6 percent on a quarterly basis in Houston and 0.3 to 0.9 percent across Dallas/Fort Worth, Austin and San Antonio. Limited new product deliveries played the biggest role in the stronger-than-usual performances across Texas during late 2011, according to MPF Research. "While Texas is experiencing an upturn in construction starts, most of that new supply won't begin hitting the market until the last half of 2012 or in early 2013," Willett said. "Right now, demand is topping deliveries by a big margin, and the Texas markets are positioned for apartment revenue growth at record or near-record levels by local standards during the coming year."
MPF Research is anticipating that overall revenue growth for U.S. apartments in 2012 will nearly match the hefty results posted in 2011. Occupancy is expected to move up another half of a percentage point, and rents are forecast to rise 4.5 percent.
In a shift to the pattern seen since momentum returned to the apartment sector beginning in early 2010, look for middle-market and bottom-tier properties to exhibit the most performance growth during 2012, according to MPF Research. "Top-end communities are already completely full and have rents well above their previous highs in most metros," Willett said. "However, there's still room for occupancy to tighten in older product, and those properties haven't yet fully recovered from the rent losses suffered during 2008-2009 in quite a few areas. Also, we're likely at the point where further rent increases in the best developments will force some households to downgrade in product quality in order to find apartments they can afford."
Northern California's apartment markets ranked as the nation's rent growth leaders during calendar 2011, despite the fact that some weakness registered in the performances recorded in parts of the Pacific Northwest specifically during the fourth quarter. Year-over-year, effective rents for new leases jumped 14.6 percent in San Francisco, 12.3 percent in San Jose, and 9 percent in Oakland.
Elsewhere, the country's strongest annual rent increases were in Boston at 8.3 percent, New York at 7.3 percent, Austin at 7.2 percent, Pittsburgh at 6.8 percent, and Denver at 6.7 percent. Metros posting rent growth just under the mark of 6 percent during 2011 were Seattle at 5.9 percent as well as Charlotte, Chicago and Minneapolis, all at 5.8 percent.
With rents down 0.4 percent, Las Vegas was the nation's only major apartment market that lost pricing power during calendar 2011. Even there, total revenues actually managed to climb at a modest pace, however, since the metro's occupancy rate improved 1.3 percentage points.
A discussion of the nation's latest apartment performance results is available at www.realpage.com/MPFQ4Report.
Reported by PRNewswire 1/5/2012