Brad Cribbins has had a great couple of years.
As chief operating officer at the management division of Phoenix-based Alliance Residential, Cribbins has helped push rent increases at a nice clip across the firm’s 50,000 units and 24 markets since 2010.
“On average, we’re up in the high double digits since 2010,” Cribbins says. And he doesn’t plan to take his foot off the gas in 2013, either.
With markets such as San Francisco projecting rent growth of 8 percent to 10 percent this year, and Denver, Dallas, and Seattle slated for bumps of 4 percent to 5 percent—even though that growth rate has slowed from last year—his outlook continues to be optimistic.
“Supply is building, and we continue to watch deliveries, but net absorption in key markets with select demographics will remain strong,” Cribbins says. “We expect a good year.”
After the past two years of seemingly at-will price increases, 2013 is shaping up to be a year of inflection, one in which operators will undoubtedly still be able to charge more in rent than they did in 2012, but not with the same gusto seen since 2010. MPF Research, the market intelligence division of Carrollton, Texas–based multifamily technology provider RealPage, is projecting annual apartment rent growth of around 3 percent for 2013, down from a high of 4.8 percent at the top of the cycle.
Having weathered the Great Recession and the bottom of the market in late 2009, the multifamily sector started experiencing unprecedented demand, driven by the reality that many erstwhile homeowners suddenly faced in the depths of the mortgage crisis: They had nowhere else to go. With limited supply and what seemed like an almost unlimited demand, rents started rising sharply off their lows as the market turned.
Rents have increased nationally, from an average of $944 in December 2009— the market’s low point—to $1,072 in October 2012, a jump of more than 13.5 percent, according to Dallas-based multifamily research firm Axiometrics. In some markets, such as San Francisco, the rise has been even more dramatic, up a full 20.3 percent from four years ago.
The magnitude of those numbers has given pause to some in the industry who question whether 2013 will be the year to give back at least part of the recent gains multifamily has enjoyed. After all, this cycle hasn’t looked like ones in the past: Rents have continued to grow even though real job growth has been sluggish and the return on 10-year Treasuries has continued to drop. In most weak job and deflationary environments, rents should go down.
But it’s important to look at current rent growth in the context from where it came.
Axiometrics says today’s national average rent number is actually just 5.3 percent higher than it was in October 2008, when it was $1,018. That means that real average rent growth over the past four years has been right around 1.25 percent annually, which seems, well, downright modest compared with the industry’s historical average of 2 percent or more.
“A lot of companies and properties are still just trying to catch up to pre-recession levels from 2008,” says Emily Goodman, regional property manager at Newport, Calif.–based CORE Realty Holdings Management, which manages 6,500 units. Goodman is targeting rent increases in the range of 3 percent to 8 percent for 2013 for her portion of the portfolio.
Other operators stress that now isn’t the time to become complacent just because things have been relatively easy the past few years.
“In a rental market as strong as the current one, replacement tenants are easy to find, but you still want to avoid turnover, if possible,” says Lee Kiser, principal of Chicago-based broker Kiser Group, which expects Chicagoland rents to flatten this year from 2012’s growth of 7.5 percent to 10 percent. “Your best strategy is still to shop your competition and understand what alternatives your tenants have. You want to make sure you stay competitive.”
Contributing editor Joe Bousquin is based in Sacramento, Calif.