Excerpt from the 4Q18 Witten Advisory: As the headline in the chart points out, for the first time in three years, absorption exceeded net completions. With so many new projects in lease-up, it’s not surprising that leasing surged, hitting 260,000 units – the highest level since late 2010. What is surprising is that demand soared passed the large number of net deliveries, which resulted in occupancy rising 20 basis points to a new cyclical high of nearly 96%. We haven’t seen occupancy levels this high since before the tech-wreck in late 2000/early 2001.
These lower-than-normal vacancy rates re-strengthened owners’ pricing power, lifting the annual pace of rent inflation above 3%. As an aside, we had projected this acceleration in rent growth last year. At the time of our 4Q17 call, rent growth was running at 2.8% and slowing, but our forecast for this year called for 3.3% rent growth as of 3Q18. We ended up at 3.2% instead.