The pandemic accelerated the trend of people migrating south. While warmer weather and overall affordability are big draws, less restrictive governments are another emerging catalyst of the Sun Belt migration trend. All this means people continue to move south even as housing prices heat up.
This means rental rates on apartments are surging as occupancy levels remain high. Rents aren't showing any signs of cooling off in 2022. That's clear from the outlook of some of the leading apartment-focused real estate investment trusts (REITs) in the Sun Belt region.
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Mid-America Apartment Communities: The momentum continues
Mid-America Apartment Communities (MAA -1.17%) recently reported strong fourth-quarter results. The residential REIT's CEO, Eric Bolton, noted that its results "were ahead of expectations, with strong rent growth and high occupancy."
Overall, rents grew by an average of 10.1% in the quarter as occupancy across its portfolio improved from 95.7% to 96%. With the overall vacancy rate for apartments low in the markets where it operates, the REIT reported that resident turnover also remained low, meaning it could push through double-digit rent increases at renewal.
Mid-America doesn't expect market conditions to cool off in 2022. Bolton stated: "The demand for apartment housing across our markets continues to accelerate. We are carrying strong pricing momentum into 2022 and expect leasing conditions in the coming year will remain very favorable." That was evident in January, as the REIT captured an average rental increase of 16.3% across its portfolio. The strong rental growth rate has Mid-America projecting that its net operating income (NOI) will grow by 10% to 12% next year.
Meanwhile, the tight apartment market is providing the REIT with opportunities to expand. It's investing $460.5 million to develop six apartment communities and add more than 2,000 apartment units. It expects to finish three this year and the rest in 2023. These investments position Mid-America to benefit from continued apartment demand growth across the Sun Belt region.
Camden Property Trust: Another strong year ahead
Camden Property Trust (CPT -1.35%) also recently reported strong fourth-quarter results. The apartment REIT's NOI surged 14.9% in the period. It benefited from higher occupancy (97.1% versus 95.5% in the year-ago period) and higher rental rates. On average, new lease rates were up 15.7% in the fourth quarter.
That momentum has continued in early 2022. Camden's blended effective lease rate was also up 15.7% year over year in January, as occupancy remained strong at 97.2%. Meanwhile, renewal letters for February and March included mid-14% rental rate increases. These higher rental rates have the REIT projecting that its NOI will grow by 12% NOI this year.
While an increase in remote work is accelerating the Sun Belt migration trend, it's not the only catalyst boosting apartment demand. The region is also seeing significant job growth as more companies expand and relocate in major Sun Belt cities, drawing younger workers to the South in search of employment.
On its fourth-quarter conference call, Camden noted that economists expect companies to create an estimated 1 million to 1.2 million jobs across its 15 major markets in 2022. Meanwhile, developers are on track to add 150,000 to 200,000 new apartment units in those cities. The strong jobs growth should help absorb the new supply and keep existing communities occupied, helping drive continued strong rent growth.
Camden is taking advantage of these market conditions. It's investing more than $600 million to add nearly 1,800 apartment homes in five of its markets. In addition, the company spent about $60 million to buy more land in two of its markets for future development purposes. These investments position it to benefit from the continued growth in apartment demand across the Sun Belt region.
The best location for apartment real estate
People continue to flock to the Sun Belt region due to its abundance of jobs, warmer weather, better overall affordability, and fewer government restrictions. That's driving up apartment occupancy levels and rental rates, benefiting REITs focused on these metro areas. This trend isn't showing any signs of cooling off, which has these REITs expecting more growth ahead in 2022 and beyond.
