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/ Analytics Blog / Research & Trends / Which Small Markets are Appealing for Acquisitions? by Kim O'Brien Posted Sep 17, 2018 in Apartment Market Webcasts, Capital Markets, Market Research

With big price run-ups seen in the country’s large apartment markets over the course of this economic cycle, investors chasing yield are becoming more open to consideration of secondary and tertiary markets.

Here are a few that could be worth checking out, according to the latest RealPage Asset Optimization webcast. 
Knoxville hasn’t logged significant job growth recently, but this college town enjoys a solid economic base, with populace and lifestyle benefits anchored by the local university. With a base of 50,000 market-rate apartments, Knoxville’s conventional stock is larger than those in most other small university markets.

Though job growth has been modest in Knoxville during most of the current cycle, the employment base reached an all-time peak of about 400,000 jobs by the end of 2016, where it has remained since. Despite modest job growth, Knoxville is anchored by a few key drivers: the Department of Energy’s massive presence in Oak Ridge, University of Tennessee’s flagship campus and several large healthcare facilities.

But robust job growth isn’t necessarily needed, as this market hasn’t added a ton of apartments to fill this cycle. Deliveries have been modest, with annual completions peaking at just 1,400 units in 2nd quarter 2012, an inventory increase of 3.1%. Since then, annual supply volumes averaged less than 500 units.

A solid economic foundation and limited supply have kept demand ahead of supply throughout much of the cycle, barring a blip when completions peaked in 2012. Occupancy, then, has remained between 95% and 97% over the past three years. As of 2nd quarter 2018, occupancy in Knoxville was at a strong 96.4%, well ahead of local norms and the U.S. average.

Rent growth in Knoxville has also been strong recently. At 5.4%, annual price increases are some of the highest this metro has ever seen. Annual effective rates were at $881 as of 2nd quarter 2018.


Tacoma’s performance is red hot right now, bolstered by strong employment growth as well as spillover benefit from Seattle’s wider economic reach. Tacoma led the nation for job base growth in the year-ending June, with employment expansion of 4%. Over the course of the current economic cycle, the job base has increased by a sizable 22.3%. Annual job growth in Tacoma peaked in late 2016, when 12,600 jobs were added.

Meanwhile, supply has been limited. Tacoma has registered annual deliveries at an average of just over 600 units during the current cycle, increasing the existing base by just 9.5% over the past eight years. In comparison, neighboring Seattle’s much larger inventory swelled by 2% just in the past year. And while Tacoma benefits from Seattle’s economic progress, it hasn’t seen a spillover of Seattle’s supply-induced performance slowdown. That’s largely due to completions being so concentrated in Seattle’s urban core, with a relative lack of deliveries in southern submarkets that border Tacoma.

In turn, Tacoma’s performance has remained solid. Occupancy in Tacoma between 95% and 97% in the past five years. At 96.9%, June 2018 occupancy is one of the strongest readings this metro has realized historically and is well above the U.S. average. The Class C stock in Tacoma is especially tight, with occupancy reaching 98.3% in 2nd quarter.

Tacoma came in #5 in the nation for rent growth in the year-ending 2nd quarter, with an increase of 6.7%. Price increases in Tacoma have been consistently strong in recently years, with annual price hikes registering at an average of 7.7% since the beginning of 2015. Throughout the course of the cycle, rents have climbed a total of 40.6%. Average effective prices are now higher than they have ever been at $1,233.

Lakeland-Winter Haven, FL

Located roughly halfway between Tampa and Orlando, Lakeland-Winter Haven has enjoyed steady employment gains since the beginning of 2012. The economic base here has grown 17.2% during the current cycle, about in line with the U.S. norm.

New apartment supply has kicked up a bit lately, with a little over 700 units delivering in the year-ending 2nd quarter, growing the existing base a notable 3%, well ahead of the historical average for Lakeland-Winter Haven. In fact, from the last half of 2014 through the first half of 2016, the market saw no deliveries at all. Looking forward, the metro isn’t expected to register any near-term completions, either.

Occupancy in Lakeland is at 97%, well ahead of both the national average and the long-term historical trend for this market. The last time occupancy was this tight was in 2006.

At 6.3%, Lakeland-Winter Haven logged the ninth strongest rent performance in the county in the year-ending 2nd quarter. In fact, annual rent change in the metro has exceeded 5% since early 2015. Prices here haven’t broken through the $1,000 threshold just yet. Average effective rents were at $980 in June.

Salinas, CA

Salinas is a slow-growth market with a rural economy. The economic base expanded 3.2% in the past year, more than twice the metro’s historical average. This small market kept up with national norms during the current cycle, with employment growing a total of 17.3% in the past eight years.

Annual new supply volumes have averaged just below the 100-unit mark throughout the course of the cycle. Those mild additions totaled to an increase of just 2.6% since 2010. In comparison, the nation overall saw its inventory base swell 11.3% during the same time frame. That pattern is set to continue in Salinas, with no near-term completions on the horizon.

Salinas registered one of the nation’s strongest occupancy readings at 97.8% in 2nd quarter 2018. In fact, this market has been at or above the essentially full mark consistently since 2nd quarter 2013. In fact, the low point for this market came not long before that, with a rate of 93.1% in early 2013.

With tight occupancy and recent economic momentum, rent growth in Salinas was solid at 5.4% in the year-ending 2nd quarter 2018. While this reading was ahead of the national average of 2.5%, recent increases are down from the double-digit hikes Salinas was recording not long ago in 2016. These surges fed into overall cycle growth of a significant 44.9%. Annual effective rents started the economic cycle at $1,117 and have swelled to $1,726 as of June.

For more discussion on these and other high-performance small markets, view the latest RealPage Asset Optimization webcast, “Sarasota to Reno: 21 Small Market Opportunities.”

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