Apartment Operators Positioning for Forecasted Changes in Occupancy and Rent Growth

Apartment operators are working occupancy like textbook economics.  Multifamily companies are taking advantage of higher demand created by unusually slow apartment stock deliveries to fill units, and they don’t mind leaving money on the table to do it. The nation’s rise in occupancy to 96.3 percent – the highest of the current cycle – stems from anticipation that lower job growth and a pickup in deliveries could apply pressure next year. RealPage Economist Greg Willett told Dallas/Fort Worth multifamily investors and operators movers and shakers in Dallas/Ft. Worth in an economic update at the Marcus & Millichap Multifamily Forum that the strategy suggests weathering a slowdown is less choppy with a full boat. While the delivery of new stock has dropped to 250,000-260,000 annually, the pace is expected to pick up next year closer to the norm of 300,000-plus. Also, even though economists are backing off from a mild recession in the next few months, the dip in employment growth below last year’s rate of 223,000 jobs per month bears watching. Willett, whose message wasn’t about the potential for a recession, said the boost in occupancy is some needed padding. He is forecasting that occupancy and rent growth will recede over the next year and a half to two years. “The reason that operators and others are approaching, it is from the perspective that if we do have the period of slower demand, you would like to start with occupancy as tight as you can get it,” he said. “We now have occupancy that’s about 150 basis points over the long-term norm so that gives us some cushion if we do go into this period when economic expansion slows down and demand for apartments cools off a little bit.” Occupancy, rent growth to trend downward Positive job growth has been on a roll going on nine years but, while still a healthy number, new monthly jobs have averaged 165,000 compared to 223,000 in 2018. Based...