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Experts are taking a stand on the future of the apartment sector.
In an article for Multifamily Executive, Ryan Severino, Senior Economist at REIS said, “It’s time to stop kidding ourselves: New data clearly show the idea that insatiable demand will outpace supply for many moons to come is a myth.” Severino is referencing the Q3 data and Preliminary Apartment Trends Report which found that vacancy is beginning to rise and “importantly, this rise in vacancy has occurred without the deluge of new supply that is in the pipeline but has not yet hit the market.”
“If we focus on the segment of the market where there’s been supply growth over the past few years, we’ll see that vacancy is already rising and that demand already can’t keep up with new construction,” said Severino.
Alternatively, Axiometrics, Inc., a Dallas-based apartment research firm “that uses a different methodology from REIS, found that the vacancy rate fell” reports The Wall Street Journal. And indeed Stephanie McClesky writes that “the occupancy rate set a 14 ½-year high at 95.3% in the third quarter.” REIS apartment data is based on market rate rental complexes consisting of 40 or more units. Axiometrics tracks properties with 50+ units, Class A++ to C-.
Axiometrics isn’t the only one with an optimistic slant. Jay Parsons, Director of Analytics & Forecasts at MPF Research, said he had “nothing but good news to deliver” in a recent video and that “despite widespread expectations of slowing rent growth in 2015, the opposite has played out. Apartment rent growth hit a new high for this cycle in Q3 2015, fueled by huge hikes in the West region of the country.” MPF Research also found that the average nationwide occupancy stood at 96.1% at the end of Q3, (up 30 basis points per annum). Axiometrics predicts the final effective rent growth for 2015 will be 5.1%.
“If supply growth doesn’t accelerate further, or slows down while developers consider new projects, the current trend could keep vacancies low while bringing rental growth close to or above levels observed during the 2012 peak, according to analysts with CoStar Portfolio Strategy,” said CoStar.
So while the experts each have a firm position on the outlook for the apartment sector, the opinions differ greatly, and generally speaking there is a lot of uncertainty as to how things will play out in quarters to come.
According to Emerging Trends in Real Estate® 2016, co-published by PwC US and the Urban Land Institute (ULI), “the multifamily sector has enjoyed a long run of success during this decade – and while surveyed participants still rate this prospect well, the high prices and low cap rates in many locations are giving some interviewees pause as they contemplate the future. There may be a shift in investment and development outlook in 2016 and beyond.”
REIS still expects that over 200,000 new units will be delivered during the remainder of 2015. They also predict that asking and effective rent growth is expected to stay around 4% for 2015, “which would be the best calendar-year performance since 2007,” said Severino. There are 432,407 units under construction at the end of Q3 according to MPF Research.
Bull Realty, Inc., Research