Real Estate Journal — NJAA CONFERENCE & EXPO — May 13 - 26, 2016 — 7D
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M id A tlantic
2016 NJAA C onference & E xpo
enters currently have an insatiable appetite for newly constructed By Aaron Terrazas, Zillow Hunger Games: Builders keep serving up more apartments, renters keep scarfing them down R
17 markets – signaling a cool- ing rental market – while the 3-month absorption rate has increased in 14 markets – sig- naling a hotter rental market (figure 4). In one metro – Port- land, Oregon – it has remained constant. The markets where new apartments are being rented at an increasingly fast clip include Baltimore, Rich- mond, Las Vegas, Orlando, Raleigh, Dallas-Fort Worth, Tampa, Phoenix, Denver San Diego, Austin and Virginia Beach. The markets where new apartments are experi- encing a slower pickup than a year ago include Philadelphia,
onto the market has peaked in Q3 while the share of new units rented has bottomed in Q4. For renters searching for a new apartment in a given market, Q4 appears to be the best time (and Q2 the worst time) for those seeking new inventory. But while seasonal patterns are reflected in share of units rented within 3 and 6 months, they do not appear in the share of new units rented within 9 and 12 months. This may be because building owners are potentially more willing to of- fer concessions or lower rents after a unit has been on the
market between six and nine months without being rented. New apartments completed in Q3 2015 were roughly evenly divided between studios/ one- bedroom units, and units with two or more bedrooms. For studios and one-bedroom units, there is clearly very strong demand for more affordable apartments: 76% of the least expensive new studios/one- bedroom units rented within 3 months, compared to 58% of the most expensive units. Of the 32 metros where data are available for both Q3 2015 and Q3 2014, the 3-month absorption rate has slowed in
San Antonio, San Francisco, New York, Chicago, Char- lotte, Des Moines, Riverside, Atlanta, Washington, DC, San Jose and Fargo. Las Vegas, Des Moines and Columbus had the highest shares of new apartments built in the previous year that were rented within three months, although this was driven in part by relatively low numbers of new units com- pleted. At the other extreme, Sacramento, San Antonio and Riverside had the lowest 3-month absorption rates. Aaron Terrazas is a se- nior economist at Zillow. n
units, quickly gobbling up record num- bers o f re - cently opened new apar t - men t s , a c - cording to the Census Bu- reau’s Survey
Aaron Terrazas
of Market Absorption of New Multifamily Units (SOMA). Almost 100,000 new apart- ments came online nationwide in Q3 2015 (the latest quarter for which apartment comple- tion and leasing data are avail- able), 21% more than a year earlier, 73% more than two years earlier, and more than at any point since the late 1980s. New apartment production has trended sharply upward since late 2010/early 2011, when new apartment comple- tions hovered under 30,000 per quarter. But despite this flood of new supply, which in other circumstances might drown out demand and lead to new units sitting on the market for a longer time, more than 80% of these new apartments are rented within a year. The share of apartments completed in the past year that remain unrented has declined from 30% in Q4 2009 to 18.7% in Q3 2015. Anywhere from half to two- thirds of apartments com- pleted in a given quarter rent within three months. Within six-months, roughly 70% to 80% of new units are rented. By nine months, it reaches upward of 90% and then in- creases only slightly over the next quarter. For the most recent apartments for which a full 12-months of occupancy data are available – those completed in Q4 2014 – 94% had been rented a year later. These ratios have been fairly constant over time, which is notable in the face of re- cent surges in newly deliv- ered apartments – it suggests the recent building boom is roughly meeting demand, and neither exceeding it (which would cause absorption to fall) nor failing to meet it (causing a spike in absorption). There is also a clear seasonal pattern in both the number of new units coming online, and the pace at which they are rented. In each year since 2011, the number of new units coming
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