Expectations for Peak Leasing Season 2017

peak leasing season

 

New supply coming on line could make peak leasing season interesting

The forecasted second-quarter surge in new apartment supply, mostly in the top tier, has set the stage for what could challenge some property managers during peak leasing season.

Unlike previous years when demand outpaced supply, Class A and Class B property managers may find themselves coveting renewals and leads more – even rolling out the red carpet – as options for renters increase in some markets. The same may prove true in other classes, where little separation in rents exists, before supply is expected to peak later in the year.

Incoming inventory to have an impact on 25 most-active metros

Last year, total apartment absorption in the nation’s top 100 metros rose 10 percent from 2015, and demand mostly aligned with the completion of about 289,200 units. New properties opening actually helped spur leases at a time of year when demand typically stagnates. However, the market began changing in the fourth quarter as demand fell short of new inventory.

RealPage Chief Economist Greg Willett indicated that, despite the drop in demand, 2017 scheduled completions in the top 100 markets are expected to reach 363,000 units. Most of the new inventory will arrive in the 25 most-active metros, according to MPF Research, with Dallas, Houston and New York expected to get the biggest chunk.

Experts predict the increase will cause a greater flurry of activity in May, June and July of this year compared to 2016.

“It’s going to be a big jump,” Willett said. “Ideally, you’ll have all those units for lease-up during peak leasing season. You don’t want … to be leasing them during the winter months.”

Just as important is securing renewals while competitors dangle carrots.

“If competition for new leases is so fierce, you (must) think about how to hold onto the existing residents,” Willett said. “Renewals are a big deal for the top-end sector.”

Lower rents already appearing in some markets

Historically speaking when supply outpaces demand, properties can try offering concessions to lure renters. We’ve already seen evidence of this approach in some large markets, such as Houston and New York, where rents have fallen.

“You’re already seeing discounting and flat to negative rents in urban core luxury, (but) not necessarily suburban luxury,” Willett said.

At the end of 2016, landlords in Manhattan experienced flat rent growth in the luxury market amid a 35 percent jump in listings, according to Bloomberg News. And the trend may continue with a significant jump in building permits issued in New York, Newark and Jersey City in January.

Likewise, Houston’s high-rise market took a hit last fall when rents declined 7.1 percent – the most nationally – because of oversupply and job losses resulting from the energy market downturn. The Oil City expects more deliveries this year, but it remains to be seen how the job sector will rebound.

The good news is that national job growth, which slipped at the end of the year, appears to be back on track. The U.S. Bureau of Labor Statistics reported robust job growth in February. Nonfarm payrolls rose by a seasonally adjusted 235,000 from January, and unemployment remained at 4.7 percent.

peak leasing season

‘You have to understand where you fit in the spectrum’

In a webcast in March, MPF Research said the influx of new properties should taper in 2018 and 2019. Jay Denton of Axiometrics – recently acquired by RealPage, Inc. – noted that most markets have started reining in their issuing of construction permits.

Real Capital Analytics reported a big decline in land sales in 2015-16. MPF Research Vice President Jay Parsons attributed the shift to higher land prices and tighter financing.

In some already competitive markets, the narrow gap between Class A and Class B properties could shrink more with discounted rents, enabling renters to find better living while spending the same or only a little more. By contrast, the same may not be said of other markets where large separations exist between luxury and lower-tier units.

Willett cautioned that either way, “You have to understand where you fit in the spectrum.”

 


Contributing Editor, Property Management Insider
President, Ballpark Impressions, LLC

author photo two

Tim Blackwell is a long-time publishing and printing executive in the Dallas/Fort Worth area who writes about the multifamily housing and transportation industries. He has contributed numerous articles to Property Management Insider, and worked as a newspaper reporter in the D/FW area. Blackwell is president of Ballpark Impressions, and publishes the Cowcatcher Magazine. He is a member of the Fort Worth Chapter/Society of Professional Journalists.

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