Keeping a Pulse on the Multifamily Market

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A recent report was issued by Axiometrics which covered the state of national effective rent growth. There are a few things to note to help get a clear picture of what’s going on.

National rent growth has incurred a consistent decline/moderation since September of 2015. In fact, we have seen annualized rent growth decline from roughly 5.2% in September 2015 to roughly 4.1% in February of 2016. This is a difference of about 110 basis points. The item that sticks out to me the most is the consistent level of decline. If you refer to the report, the same time period between 2014 and 2015 shows absolutely no decline in rent growth. Even during this time period back in 2013 to 2014 does not show the consistent level of rent moderation/decline.

This data may not signal that we are about to hit a major correction in multi-family in the next few months, but it is clear that there are signs and signals (many of which are not covered in this post) out there pointing to an imminent downturn within the next year or two. Basically, these indicators just mean that we should start paying close attention to the market and what’s happing on a month to month basis. Axiometrics is a great platform for doing so.

Another item to note is the national occupancy level which is covered in the report as well. It states that occupancy levels have slightly increased by about 10 basis points over January’s numbers. As you’ll notice on the chart, this seems to be a historical trend. But to me, it doesn’t mean much. Occupancy rates can have a much stronger outlook because all you need to do as an apartment owner is just reduce the rents. By reducing the rents, you can essentially keep occupancy high and in some cases, even increase it. So in my opinion, I would put more focus on effective rent growth and not so much on occupancy rates.

The last item I believe should be noted is the strength of Salt Lake City’s fundamentals. Between solid employment growth and a lack of new supply, the demand for multi-family has increased. When demand increases, rents tends to increase as well, which can clearly be seen in the graphs. The biggest point to take from this information is that national apartment trends are not necessarily indicative of local trends. Basically, the difference between macro and micro economics. When considering the purchase or development of an apartment building, I believe it is always important to analyze the local trends, as they may be telling you a different story from what’s happening on the national level.

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