July 20, 2017

Few Realized Just How Big The Gulf Is Getting

A report from the Arizona Republic. “The Valley needs a lot more apartments to keep up with its expected growth, according to a new study. Anyone who has been around downtown Phoenix, Scottsdale or Tempe, where thousands of apartments have recently gone up or are under construction, will probably find this hard to believe. I did. More than 10,000 new apartments are underway or have recently opened to renters, mainly in those areas. Rents are a great gauge to whether an area has too many apartments. After jumping nearly 15 percent since 2015, rental rates are dipping in parts of the Valley with the most new apartments. And developers at new complexes are beginning to offer deals on longer leases.”

“A little overbuilding can be good news for renters when their monthly payment dips, but too much is a bad thing for home values, the real-estate market and the economy.”

The Dallas Morning News. “The run up in Dallas-area apartment rents may be easing. During June Dallas-area rents were just 2.4 percent ahead of where they were a year ago, according to apartment researcher Axiometrics. That’s the smallest annual increase in the Dallas area in seven years and the first time in recently that the rise in Dallas rents was less than the national average. ‘The influx of Dallas supply is finally affecting market performance,’ said Jay Denton, vice president of analytics for Axiometrics. ‘Demand is still high, but it will take a while to fill all the new properties in the market.’”

“Almost 29,000 new apartments are set to open in North Texas this year. Currently there are over 50,000 apartments being built in North Texas.”

The News Tribune in Washington. “The regional apartment market might be softening just a bit, which would be welcome news for renters who have seen double-digit rent increases compared to last year. Apartment vacancy rates in Pierce and Thurston counties are climbing, according to Seattle research firm Apartment Insights. Plus, Pierce County is seeing record levels of apartment construction. Apartment vacancy rates in Pierce County in the second quarter of 2017 was 4.21 percent, up from 3.34 percent the year before, according to Apartment Insights, which studies apartment complexes with 50 or more units.”

“Apartment Insights says 4,004 apartments are under construction or have completed permitting in the three-county area, most in Pierce County. Another 4,251 are at earlier stages of permitting and review. Rents in newer buildings, which have luxury finishes and amenities, can cost north of $2,000 for a two-bedroom, two-bath unit. A family living there would need to earn $72,000 a year to even get in the door. Tacoma’s median household income is $60,000 a year, Census data show. About 40 percent of Tacoma households earn less than $50,000 a year.”

“That’s probably the fill-in from the Seattle market,’ said Raelene Rogers, a partner at McCament and Rogers LLC, a Gig Harbor consulting firm that specializes in urban development, of those who can afford that kind of apartment.”

From Multi-Housing News on California. “After several years of heightened growth, multifamily rents in San Francisco have tempered. Rents have reached a point where even highly paid workers can’t afford the premium prices. Transaction activity has slowed in 2017, with only $300 million in properties trading in the first five months of the year. This comes after last year’s cycle high, when more than $3 billion in assets changed hands, reflecting investor caution amid escalating prices and macroeconomic uncertainty. With more than 15,000 units under construction, Yardi Matrix forecasts rents will remain flat in 2017.”

From The Tennessean. “The average rent for a one-bedroom apartment in the Nashville area fell 3.1 percent a month during the first half of this year, the third biggest drop among cities nationwide. After years of growth, monthly rents are leveling off at the swanky, new apartments that dot the Nashville skyline with developers and landlords now offering concessions and other perks to lure renters. ‘The new have come online quicker than they’ve been absorbed, so there’s been a little indigestion for everything to get back in balance,’ said Woody McLaughlin, a member of the statistics committee of the Greater Nashville Apartment Association trade group.”

“Abodo’s apartment analysis of rents didn’t take concessions into account. But a separate tracking by research firm CoStar Group shows most newly delivered projects in the Nashville area offering two months free rents on 14-month terms and a month free on 13-month terms, waiver of fees and deposits and perks such as gift cards and TVs. ‘It’s only the properties that have really slowed down in leasing or are still pre-leasing while under construction that are offering these types of concessions on a 12-month lease,’ said Elinor Avant, a CoStar market analyst. ‘Discounted rent is still pretty rare, but is becoming more common as the competition rises. $500 and $1,000 upfront is really common on all lease terms.’”

“Currently, 16,000 apartment units are under construction in the Nashville area with 10,000 more units in various planning stages, according to the Greater Nashville Apartment Association. For the first quarter, Nashville’s apartment occupancy rate fell 2.76 percent to 92.69 percent, reflecting increased supply including completion of 1,786 new units during that three-month period. McLaughlin expects a more challenging environment for apartment owners/developers as inventory continues to grow. ‘The consumer can continue to expect concessions on the high-end product to compete with more renovations of older apartments that can compete price-wise,’ he added.”

From Bisnow on Pennsylvania. “Philadelphia has benefited from an increased national profile in the past few years among residents and investors alike, but those who may wish it to grow as fast as its Northeast neighbors may be playing a dangerous game. The large majority of incoming multifamily construction is in Center City, which does provide some optimism that surrounding areas could remain fertile for new apartments. But firms that count Philly among a multi-market portfolio do not see much runway in the market. ‘There looks like there could be a slight lapse and softness in 2017-18,’ LEM Capital partner David Lazarus said.”

“While it is commonly accepted that new construction needs to charge a certain rent in order to recoup high construction costs, perhaps few realized just how big the gulf is getting. Lazarus said only 178 new Class-B apartments were delivered across the country last year. ‘We’re all focused on these new Class-A units and where the tenants are coming from, but what’s really going on is that there’s an affordability crisis in this country,’ Lazarus said.”