The U.S. apartment market has put up an impressive performance in the past few months, successfully banking on the stellar rental-unit demand. While occupancy is hovering at a near-record level, rents continue to register a steady rise.
Per the latest report from real estate technology and analytics firm, RealPage (RP - Free Report) , occupancy reached 96.3% as of third quarter 2019, with an impressive leasing activity. The figure is not only up from the prior-year period’s 95.9%, but is also close to the all-time high of 96.4% attained almost two decades ago in late 2000.
The warmer months definitely witness an uptick in apartment leasing activity. However, this year, the performance was robust, as demand was particularly strong. According to RealPage chief economist Greg Willett, “New household formation continues, and rentals are capturing a sizable share of the resulting housing demand. At the same time, loss of existing renters to home purchase remains limited relative to historical levels.”
Moreover, with the upsurge in renter demand, the number of occupied apartments shot up 118,000 units in the September-end quarter. This pace of product absorption is a whopping 24% ahead of the average demand reported in the third quarter of the previous five years.
With an uptick in occupancy, rent growth also seems to be steady. For new leases, rents were up 1.2% during the third quarter, driving the annual rent growth pace to 3% and monthly rents averaging $1,416. This comes after a solid performance in the April-June quarter.
This ushers in good news for residential REITs, including Essex Property Trust, Inc. (ESS - Free Report) , AvalonBay Communities, Inc. (AVB - Free Report) , Equity Residential (EQR - Free Report) and UDR Inc. (UDR - Free Report) . Earlier, high apartment deliveries had curtailed landlords’ ability to command more rents, and resulted in aggressive rental concessions and moderate pricing power of landlords.
Nonetheless, considering the extent of tightening in occupancy, rent growth has not been that robust. This is because apartment owners and operators prefer to enjoy more occupancy and forego marginal rent growth, as they remain concerned with the probability of a slowdown in economic growth and apartment demand in the near term.
In addition, construction in the U.S. apartment sector remains at three-decade highs. In approximately the next 18 months, market-rate apartment properties under construction, comprising around 538,000 units, will be finished. So, things can go wary, if along with high supply of new units, economic growth also decelerates.
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