November 2, 2016

A Recipe For An Overbuilt Market

A report from Bloomberg. “Have you ever bought a sweater off the sale rack and then thought, ‘Wait, 30 percent off what?’ That’s what it’s like shopping for an apartments in dozens of U.S. rental markets, as landlords offer discounts on asking prices—even as rents remain at historic highs. In San Francisco, where median rents have marched upward for years, landlords reduced the listing price on 21 percent of listings in the 12 months that ended Sept. 30, according to a new report published by Trulia. That’s up from 14 percent of listings that were price-chopped last year. In more than 40 cities across the country, including both hot spots like Denver and quieter markets like Tulsa, Okla., landlords cut prices on at least 10 percent of listings, the report said.”

“There are two main reasons for the rent reductions, said Mark Uh, a data scientist at Trulia. In the most expensive U.S. markets, landlords may have exceeded what renters will pay and are beginning to ease up. In cities where rents are cheaper, property managers are probably lowering their asking prices to make their units competitive with the supply of new apartments flowing into the market. ‘Landlords have been listing units too high,’ said Uh. ‘When they reduce the price, they’re finding people who are eager to rent.’”

From Utah Magazine. “Downtown Salt Lake City is seeing an unprecedented boom in apartment development, according to a new study released by the Kem C. Gardner Policy Institute. In 2010, after 100 years of development, the number of downtown rental units in Salt Lake City totaled 5,200. By 2020, that number is expected to double to 10,000 units. For the purpose of the study, downtown includes the area from approximately 700 East to 700 West and from 400 South to North Temple, or roughly 1.65 square miles.”

“‘The magnitude of the current boom combined with very high rental rates seems like a recipe for an overbuilt market,’ said James Wood, Ivory-Boyer Senior Fellow at the Gardner Policy Institute. ‘However, as of October 2016, there are no signs of a distressed market. Vacancy rates are low, rental rates are increasing and absorption rates are strong.’”

From Boston Agent Magazine in Massachusetts. “Boston Agent (BA): Tell us about how Boston’s construction market is doing this year? Sue Hawkes (SH): It’s the largest construction boom that we’ve seen in the history of Boston, frankly. We now have a large development cycle that’s inclusive of condominiums, as well as the rentals. Some would argue that we’ve got an over supply of rentals. I think that it’s not so much the over supply that might be the issue but the required price point for the rentals that are being built can only be satisfied by the highest end consumers.”

The Pacific Business News. “Honolulu maintained its spot as the 11 th priciest city for renting an apartment during October, though rental prices declined, according to Zumper Inc. For a two-bedroom apartment, rent fell 4 percent from last month to $2,400. Rents even declined in the top two priciest cities: San Francisco and New York. In San Francisco, one-bedroom prices were down almost 8 percent from last year with a median rent of $3,380. Two-bedroom median prices were down 6.6 percent from last year to $4,670.”

From The Record in New Jersey. “After a four-year surge, home construction in New Jersey has eased this year, running about 12.6 percent behind last year’s pace, according to the U.S. census. Multifamily construction continues to drive the activity, accounting for 64 percent of the building permits issued in the state so far this year. Edgewater builder Fred Daibes said he has seen a softening in demand for rentals, except in towns close to the Hudson River. He and a partner are building a 277-unit rental building in Cliffside Park’s shopping district, and Daibes also has rental projects under way in North Bergen and Fort Lee.”

“‘High prices in Manhattan are pushing the overflow here,’ Daibes said. But except for along New Jersey’s Gold Coast, he’s not sure there’s enough population growth to keep up with the supply of new apartments coming to market in the Garden State.”

From Miami Today in Florida. “As a steady stream of completed rental units trickles into the Midtown residential market just as construction begins on others and still others are proposed, the emerging market seems to have nothing but smooth sailing ahead. As of the second quarter of the year, there were 978 completed units in Midtown, according to an Integra Realty Resources market study. Current asking leasing prices in Midtown average $2,672, with an average achieved price of $2,580 and an average of 11 leases per month.”

“Jonathan Mann, a broker with the Jon Mann Group at Coldwell Banker expects occupancy to stay stable so long as rents remain in the area of where they are now and ‘millennial incomes remain strong.’ Hyde Midtown, with 410 units at 3401 NE First Ave., is seeing an average price of $632,500 per unit at $575 per square foot and an average square footage of 1,100. ‘Inventory has accumulated, and asking prices have continued to drop in the existing towers – Midtown 2 and Midtown 4 – and sales in Hyde Midtown and other pre-construction towers were pretty much non-existent during the third quarter, including the cancellation of Boulevard 57,’ Mr. Mann said.”