Many New Developments Highlight Trend Toward Smaller Unit Size
DALLAS, TX--(Marketwire - December 19, 2012) - Countering the typical seasonal trend, annual effective rent growth for the apartment market increased from 3.60% in October to 3.72% in November according to the latest data from Axiometrics Inc., the leading provider of apartment data and market research. Annual occupancy growth also increased by 48 basis points (bps), making November the sixth consecutive month with an increase, though on a sequential basis there was a decline in the occupancy rate from October to November.
Axiometrics also notes how the average square footage for new apartment construction is decreasing, reversing a trend that reached its peak at an average 1,008 square feet for properties built in the 2001-2005 timeframe. Still, while the current average of 982 square foot for properties in lease-up is lower than in recent years, it still has a ways to go before dropping to the 834 square foot average for properties built from 1981-1985, according to Axiometrics.
"As we believed would be the case at the beginning of the year, Class C properties have led the way in both effective rent and occupancy growth throughout the year, and helped lead a turnaround in momentum since August," said Ron Johnsey, president of Axiometrics. "In addition, while many coastal areas and the top Texas markets continue to lead the nation in effective rent growth, it is interesting to note that for the first time in four years Las Vegas posted positive annual growth during November."
Monthly, Year-to-Date, and Annual Effective Rent Growth and Occupancy
The national annual effective rent growth increase from 3.60% in October to 3.72% in November reversed the declines recorded for each month from April to October. Most of the increase can be attributed to Class B and Class C properties. Class B properties increased from a 3.6% annual effective rent growth rate in October to 3.8% in November. Class C properties performed even better, increasing from 4.0% in October to 4.2% in November. Since reaching a peak growth rate of 4.8% in May, Class A properties continued their slowdown, growing at only a 3.6% annual rate in November.
The national occupancy rate decreased slightly in November, declining from 94.43% in October to 94.26% in November. This decline was quite close to the declines recorded in November 2011 and 2010. However, overall monthly sequential growth the past few months has been higher than the comparable months of 2011, leading to an improvement in year-over-year changes and an increase in the annual occupancy growth rate from 20 bps in May to 48 bps in November. Once again, Class C properties led the way with a 115 bps increase, thus raising their occupancy to 92.5% in November. Class A properties remain the highest occupied, however, at a rate of 95.2%.
Axiometrics reports that as of November, all six of the major MSAs in Texas were outperforming the national average for annual effective rent growth, including: Corpus Christie (8.62%), Houston (6.77%), Austin (5.40%), Fort Worth (4.30%), Dallas (4.28%), and San Antonio (3.83%). Midland-Odessa has recently been the hottest area in the country due to the oil and natural gas boom, leading to rent increases of 25.2% over the last 12 months. The accompanying chart illustrates that while the major Texas MSAs recovered later, they have maintained a stronger growth rate than the national trend since March 2011.
Many Florida MSAs have also reported strong growth, helping them to make up some of the ground lost during that state's downturn from 2006-2009. Specifically, Naples (8.26%), Palm Bay (7.45%), West Palm Beach (6.37%), Sarasota (5.67%), Fort Lauderdale (5.55%), and Cape Coral (5.36%) all ranked in the top 21 MSAs for annual effective rent growth in November. As a whole, the Florida MSAs outperformed the national average early in the recovery period but had lagged most of the last two years. The early outperformance was mostly due to a strong rebound in southeast Florida, particularly in Miami, which maintained an annual growth rate of 4-6% through most of 2011 and 2012.
While Las Vegas stills ranks in the bottom tier of MSAs in the U.S. for annual effective rent growth, its 0.97% growth rate in November was the first positive rate reported in more than four years, and the MSA's highest since the first quarter of 2007. Still, even with the improvement in November, the level of effective rent in Las Vegas ($752) is still the same as it was nine years ago. However, recent improvement in single-family home prices could lead to higher rental rate growth as well if historical patterns hold (i.e., single-family home price increases tend to lead effective rental rate increases).
Average square footage sizes for new apartments are shrinking but have yet to reach historical lows. Axiometrics reports, however, that the trend differs by MSA. For example, Washington, DC is one market bucking the national trend, with lease-up properties actually larger right now than in previous years. While Dallas, Denver, and Houston are all trending toward smaller unit sizes for new product, those markets may actually see a slight increase in coming quarters as more units are delivered in the suburbs, where average sizes tend to be larger.
Seattle is taking the smaller floor plan trend to another level. Specifically, 18 properties as of December 17 were in lease-up in Seattle, and of that group, 11 had an average unit size of 759 square feet or less, most of which were located in the urban core. Some suburban product being produced in the Seattle area still averages close to 1,000 square feet per unit.
The accompanying charts illustrate the square footage trends over time for several cities.
Axiometrics is the only multifamily research provider to survey every property in its database at the floor plan level every month. Every property. Every month. Only Axiometrics. Learn more at www.axiometrics.com or by calling 214-953-2242.
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