A Flood Of New Supply And Weakening Demand
A report from Q 13 Fox in Washington. “Some experts say Seattle is approaching a peak for apartment units available. That means renters could see savings, but it could also mean incentives as well. According to the Seattle Times, 26% of all apartments in Seattle are sitting empty. ‘Now we’re seeing a lot more units coming online in the central Seattle market area,’ said Matthew Gardner, chief economist for Windemere Real Estate.”
“According to Gardner, the most recent stats from 2017 say in Seattle, developers have added 4,000 apartment units while 10,000 are slated for completion in the near future. ‘Because we’ve seen such a substantial amount of new supply, it’s become remarkably competitive, far more competitive since before the recession,’ he said.”
The San Francisco Chronicle in California. “According to Zumper, market rate rents reveal that the Marina and Telegraph Hill had the fastest-growing prices last quarter. Interestingly, Lower Pacific Heights — which is arguably close enough to tech related business, and had previously enjoyed an upward rent trend–went down. Year-over-year rents here dipped 7 percent. Zumper found the most affordable one-bedrooms in Bayview, Inner Sunset, and West of Twin Peaks, where units listed for a median of $2,900.”
The Dallas Morning News in Texas. “Dallas-Fort Worth’s net apartment leasing totaled 5,465 units in the second quarter. That sounds like a lot, but it’s not enough. Developers completed almost 7,000 apartments in the last three months. And on an annual basis, apartment demand is lagging new supply by almost 10,000 units, according to RealPage. At the same time, developers have ramped up building to more than 37,000 apartments on the way in North Texas — more than any other metro market in the country. No wonder apartment rents are actually falling in some parts of D-FW.”
From Tucson Weekly in Arizona. “The latest proposal for development around the Benedictine Monastery didn’t receive much support from the 100 or so neighbors who attended a public meeting. City Councilmember Steve Kozachik says student housing is already overbuilt in Tucson, and a student housing developer would be unlikely to want to build out that site with the space restrictions. He said there’s still room for compromise at a lower height. ‘You don’t get to start with a ridiculous height, drop it down a little and say you’ve compromised,’ he said. ‘Country Club is not the middle of New York City.’”
The Centre Daily Times in Pennsylvania. “Hundreds of new student housing units coming online in downtown State College are creating competition for property managers and owners of older units. ‘I think you see people who are advertising that never had to advertise before,’ said Jim May, Centre Regional Planning Agency director. Mark Bigatel, president of Associated Realty Property Management, which manages about 1,200 units downtown, said the market is ’saturated’ with new student housing complexes, both downtown and in the surrounding area. He said ARPM has a vacancy rate it’s never had before (2-3 percent last year), mostly in the two- and three-bedroom units. ‘We’re doing whatever we can to fill those,’ Bigatel said.”
From the Times Record. “The University of Oklahoma may help a struggling municipal-bond financed luxury dorm by offering housing ’scholarships’ to help students afford rental payments, university administrators and the non-profit owner of the project said on a conference call with investors. The new apartment building, known as Cross, opens in August and is just 28 percent leased. It features a ‘blow dry bar and salon,’ cycling studio, cafe and a Lululemon store. ‘We are keenly aware of the challenges that Cross is facing,’ said Steve Hicks, CEO of Provident Resources Group, a non-profit that financed the student housing with $250 million of municipal bonds.”
“The Oklahoma project and another municipal-bond financed complex at Texas A&M, which had to slash rents to fill beds, underscore the risk to investors of overbuilding luxury accommodations as students become more cost-conscious. While many universities have tapped outsiders to finance and build dorms to conserve money for academics, the University of Oklahoma project shows that developers will turn to the universities for assistance if projects falter. In late May, S&P Global Ratings downgraded the dormitory bonds to BB, two steps into junk, and left a negative outlook on the securities, signaling they may be cut deeper.”
The Washington Post. “The good news for renters in the Washington area is that they don’t have to give up living near a Metro station to save on rent. Switching from one station to another can mean saving $475 to $1,100 on the median monthly rent, according to RentHop. The top three stations where median rents dropped the most are: U Street, Forest Glen and Court House.”
From Axios. “Rental growth in the United States has reached its lowest level since 2010 as some of America’s biggest cities have been hit by a flood of newly-built luxury apartments coming online. The cities that have experienced the sharpest flattening in rental growth often have rather strong economies, according to RealPage data, but tend to have new high-end apartments hitting the market, pricing out a large segment of the community.”
“‘We’re at best only halfway through the period of peak deliveries,’ according to RealPage chief economist Greg Willett. ‘Ongoing construction of market-rate product totals just a hair under 400,000 market-rate units in the RealPage count, with annual deliveries set to stay right around 300,000 units through the middle of 2019.’”
“‘That’s just too much inventory. In order to get those apartments absorbed, even with good strong job growth, it’s taking the sizzle out of the market,’Ric Campo, CEO of Camden Property Trust, tells the Wall Street Journal And millennials are growing up and leaving the apartment rental market as they get married, start families, and move to larger homes.”
From Realtor.com. “The U.S. apartment market suffered its worst spring since 2010, near the depths of the housing crisis, as a flood of new supply and weakening demand resulted in rising vacancy rates. Joshua Clark, an economist at Hotpads who was looking recently for an apartment in the Capitol Hill area in Seattle, saw the $2,500 Amazon gift card offer. ‘I had my mouth open for a second. Seriously a lot of my expenses would be covered for the year, which would be fantastic’ he said.”
“Greg Willett, chief economist at RealPage, predicted average rents nationwide could flatten if current trends continue. ‘It’s kind of telling as we look at some of these individual markets that are losing momentum because they’re important ones,’ Mr. Willett said. The cause of the slowdown is primarily new supply. Developers responded to escalating rents by building the most new apartments in 30 years, sending a flood of new high-end units to downtown areas across the country.”
“The softening is taking place even in high growth cities. For example, the Dallas metropolitan area has the strongest job growth in the country. The problem in Dallas, landlords said, is simply too much supply. Developers are building about 22,000 apartments right now, compared with a long-term average of less than half that. Little concern has arisen that the softening could have broader economic repercussions for the U.S. financial system. Compared with the last real-estate crash, owners say there are unlikely to be many foreclosures because they are carrying much less debt.”
“Jay Hiemenz, COO of Phoenix-based Alliance Residential, an apartment company, said banks are only giving loans to developers for about 65% of the cost to build a project, compared to 80% or more previously. ‘Absent some shock that none of us can see, we will have a softer landing,’ he said.”
The Milwaukee Business Times in Wisconsin. “A vacant office building in Wauwatosa’s East Tosa neighborhood could be redeveloped into a mixed-use development or business incubator. Nancy Welch, one of the aldermen who opposed the Klein Development apartments, said affordable housing in Wauwatosa is a good idea. ‘We seem to have a glut of apartments that are market rate, but an increasing lack of affordable units,’ Welch said. ‘Not everyone employed at the Medical College or at businesses in Wauwatosa earn enough money to afford $1,500 a month rents.’”
From WGBH in Massachusetts. “There’s evidence a lot of people may be looking beyond Boston for a more affordable life. ‘We have actually been losing population to other states and the only way we’ve been able to keep jobs filled in recent years is from foreign immigration,’ said Clark Zeigler, executive director of the Massachusetts Housing Partnership. He said the problem is a housing shortage - and that it’s a threat to the booming economy. Although housing construction is also booming.”
“This summer alone more than two thousand new apartments will become available in and around Boston. That’s on top of more than 22-thousand apartment units built in the last three years. With land at a premium, almost all the new apartment buildings built near Boston are high-end with amenities like pools, roof-decks and concierge services. A $2500-a month- studio may be out of reach for many renters, but there’s an expectation that increased supply will ease what’s been a steady hike in rents. ‘Our prediction is that over the next five years or so you’re only going to see an average of one to two percent increase in rents,’ said Mark Hickey, an economist with CoStar.”
