When supply begins to outpace demand, prices for the product will decrease. We are starting to see this happen within the apartment and rental space.
Specifically in the luxury market, developers have over developed while demand for these luxury apartments have not been as high as originally anticipated.
The US apartment occupancy slipped to 94.5% in the first quarter from 95.1% last fall. We are starting to see more concessions for these high end apartments to try to get more residents to fill the vacant units. According to Axiometrics, over the past 2 quarters, demand for apartments were 100,000 units short of the number of units that were available.
Due to seasonality, we should start to see in increase in demand towards the end of q2 and into q3. Historically, during the warmer months and when school is out is when people tend to move more often.
The renewal rates for apartments are hovering around 50.8%, down from 55.1% in Feb 2016. In the past, residents opted to stay in their apartment longer and take a 3-5% increase in rent rather than move out and find a new place. The reason for doing this was simply because it was hard to find a similar apartment property in a similar location for the same or better price.
We will start to see the apartment renewal rates decrease even more as residents have more options and negotiating power to find a better rental for a lower cost.