Class-C Apartments Strengthen

November 6, 2012

The last shall be first, according to the latest August apartment markets report from Axiometrics Inc. The multifamily research firm finds that effective rents for new leases at class-C apartment properties grew faster on average than at class-A and class-B properties. 

 “We call it the filling in effect,” says Jay Denton, vice president of research with Axiometrics. “Now that occupancies are getting better, class-Cs are getting some pricing power.” 

Overall, apartment rents, including managed commercial property San Diego, continue to grow more slowly in the third quarter of 2012. Nationwide, apartment rents grew 3.7 percent on average over the last 12 months, down from 4.0 percent in the second quarter. “For five consecutive quarters the annual rate of growth—while still positive—has slowed,” according to Axiometrics. Average rent growth peaked at 5.1 percent in the second quarter of 2011. Axiometrics has now lowered its 2012 full-year forecast for effective rent growth to 3.6 percent, though it expects the rate to bounce back in 2013 because of improving job growth and renter household formation. 

“We think we are in for a pretty stable run—average 4 percent rent growth for the next three years,” says Denton. This rent growth is still significantly higher than inflation, which makes it a pure bonus for property managers. Denton calls the slackening speed of rent growth “moderation … back towards what a long-term growth rate would look like.” 

“We think we are in for a pretty stable run—average 4 percent rent growth for the next three years,” says Denton. This rent growth is still significantly higher than inflation, which makes it a pure bonus for property managers. Denton calls the slackening speed of rent growth “moderation … back towards what a long-term growth rate would look like.” 

Average effective rents for class-C apartments grew 4.1 percent over the last 12 months, compared with 3.7 percent for class-A apartments. Different markets had different results, and managed commercial property San Diego is no exception. Class-Cs did best in the top markets like Boston and Dallas, where growth in rent and occupancies has been relentless for class-A and class-B apartments. In weaker markets such as Atlanta, class-Cs continue to lag. 

Top markets for rent growth

The top apartment markets for effective rent growth start with San Francisco at 11 percent. That’s down from 15 percent in the fourth quarter of 2011. San Jose came in at 8.8 percent. Other notable markets include Denver at 7.1 percent and Houston at 6.7 percent. 

The top apartment markets have certain things in common, including a relative lack of new supply and strong job growth in industries such as technology, colleges and universities, energy and health.   These statistics represent results for managed commercial property San Diego, as well. 

Top markets also all tend to have a lot of residents who are 18 to 34 years of age with a bachelors degree or higher. In San Francisco 35 percent of the population falls into that demographic. All the top ten markets for rent growth have more than 20 percent. Most of the bottom ten markets are under 20 percent. This demographic tends to rent and also tend to do well in the job market, says Denton.  

Source: National Real Estate Investor 

DISCLAIMER: This blog has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger and does not necessarily represent the opinion of Pacific Coast Commercial.