April 2, 2018

Demand Couldn’t Keep Up With Construction

A report from the Commercial Observer. “Freddie Mac has been a trailblazer when it comes to affordable multifamily housing, delivering record numbers and leading the nation as the top multifamily financier in each of the last three years. David Leopold is at the forefront of Freddie’s presence in the affordable housing space, which accounted for 83 percent of eligible units financed by the government-sponsored enterprise in 2017. Q: Can you speak to the increased demand for multifamily and how Freddie Mac is looking to fill it?”

“A: Demand is insatiable in much of the country right now. Those areas—you know, the high-barrier to entry markets—are experiencing dramatic affordability crises and the challenge is not finding people to full the units, it’s finding enough units to accommodate that demand.”

The Dallas Morning News in Texas. “North Texas apartment demand couldn’t keep up with construction in the first quarter. RealPage estimates that net D-FW apartment leasing totaled 1,721 units in the first three months of 2018. Apartment demand fell way short of the 6,972 new rental units that opened their doors in the first quarter. ‘As in the nation as a whole, Dallas-Fort Worth’s performance got off to a rough start in 2018,’ RealPage chief economist Greg Willet said. ‘That seasonally slow leasing period is more difficult to deal with when the new product delivery volume is peaking.’”

“An additional 32,379 apartments are still under construction in North Texas. ‘That future supply is by far the biggest block of product on the way nationally. With so much new supply coming on stream, even a short period of sluggish demand can do some real damage,’ Willett said. ‘It’s difficult to maintain pricing power in such a competitive leasing environment.’”

From the Post and Courier in South Carolina. “Loads of new apartments are coming online, being built or are in the pipeline for the Charleston region. But during the past six months, supply outpaced demand and could eventually bring down rental rates, according to Charlotte-based apartment research firm Real Data. Occupancy in the Charleston area dropped to slightly less than 89 percent, its lowest level since 2010. Currently, 1,959 units are under construction in the region’s central submarket — and 1,795 more are proposed in the same area. Hundreds of others are planned throughout the rest of the tri-county region.”

“New supply coming to market over the next year will exceed demand, causing vacancies to rise, the firm said. ‘During this time, rent growth will slow as communities will likely offer reduced rents in an effort to compete for renters,’ according to Real Data.”

The Real Deal on Florida. “Miami is inching closer to falling off the list of the country’s most expensive cities to rent. Now, Miami remains No. 10 but rents are down 3.4 percent on a monthly basis and 3.9 percent compared to the previous year. Rates may be dropping now due to the rise in inventory. Nearly 16,000 apartments were slated to come online in South Florida in 2017, according to a Marcus & Millichap report. Across the country, apartment rents fell 8.9 percent to $1,184 for one-bedroom units, while rents rose 1.1 percent to $1,414 for a two-bedroom, according to the report.”

From Bisnow on DC. “Apartment buildings with more social amenities, such as pools, fitness centers and clubrooms, have sold for significantly less than those with fewer social amenities in a major U.S. market over the last five years, a new study shows. Newmark Knight Frank studied all 124 apartment buildings that have delivered in the last three years and all 26 communities that have sold over the last five years in the D.C. Metro area and detailed the precise impact different levels of amenities and designs had on rent, lease-up pace and sale price.”

“The most striking conclusion, Newmark Knight Frank Senior Managing Director of Market Research Greg Leisch said, was that buildings with five or more social amenities sold for $31,867 per unit less than projects with four or fewer social amenities. The most common social amenities it found were fitness centers, meeting and party rooms, pools, rooftop lounges, dog runs, fire pits and indoor and outdoor athletic courts.”

“The report concluded that apartments with fewer of these social amenities actually sold for an average of a 7.6% premium over those with more social amenities. ‘That was the surprise to us,’ Leisch said. ‘We thought it was common sense that the more social amenities a project had, it would probably fetch a higher sale price.’”

From the Wall Street Journal. “The apartment rental market softened in the first quarter, but not as much as expected given a surge in new supply. The apartment vacancy rate edged up to 4.7% in the first quarter, up from 4.6% in the fourth quarter of 2017, according to data released by Reis Inc. The vacancy rate jumped from 4.3% a year earlier.”

“Still, the market has proved to be resilient, given a flood of new supply from developers hoping to cash in from the strong growth rate earlier in the recovery. Nearly 59,000 units per quarter were added in 2017, compared to the historical average of around 34,000 units per quarter. The U.S. added about 1.5 million new owner households in 2017, while the number of renter households actually declined by 76,000—a potentially worrying sign for landlords looking to fill large numbers of new apartments.”