When all think alike, no one is thinking very much.
~Walter Lippmann (1889-1974)
Pricey Core Urban Properties Still Attract Well-Heeled Crowd While More Renters Take Fresh Look at Lesser-Quality Existing Apts., Potentially Slowing Lease-Ups for New Projects By Randyl Drummer
December 29, 2015
Despite the elevated new supply rolling into almost every U.S. metro, continued strong demand from renters is enabling landlords to push up rents in many markets.
If current projections hold, a total of about 455,000 new apartment units will be added to the inventory in the top 54 markets making up CoStar’s national index from the beginning of 2015 through the end of the coming year. Despite the elevated new supply rolling into almost every U.S. metro, continued strong demand from renters is enabling landlords to push up rents in many markets.
As a result of the intense development focus on urban markets, apartment vacancies are beginning to edge higher in certain CBD and secondary business districts, setting the stage for suburban and non-CBD urban locations, such as Oakland, CA, to see more occupancy and rent appreciation. Vacancy rates in these non-CBD locations are expected to remain at least 50 basis points below those in business districts, according to CoStar projections.
“While 4- and 5-Star vacancies have remained resilient over the past year, the sheer amount of supply should push vacancies up for premier product, particularly since most of the new product is delivering at higher prices than its previously delivered competition,” noted Sam Tenenbaum, real estate economist with CoStar Portfolio Strategy.
Conversely, the “average asset” market of 3-Star multifamily properties should continue to be supported by strong demographics, including an improving employment picture for 20 to 34 year olds, along with the ongoing difficulty of qualifying for mortgage loans needed to make the leap into home ownership. Demand will keep this average-quality apartment market relatively tight as the vacancy spread between the highest quality and lesser quality units widens over the next year.
Meanwhile, landlords may find it challenging to actually achieve their forecasted market rents in the coming year, according to Janet D. Neman, senior managing director with the Los Angeles office of Charles Dunn Co. Although apartment supply has been catching up with explosive demand over the last two years, market fundamentals have balanced out and the current wave of multifamily and mixed-use development could create some volatility toward the end of 2016, Nemen said.
“We see the state of renter-landlord relations being shaken up due to unrealistic speculation about rents,” Nemen said. “Market rents are being projected at hundreds of dollars more than what might be considered average for an area, and although there is fierce demand for rental housing, the price per square foot for minimum to moderate rate apartments has skyrocketed.”
With low capitalization rates and a three-decade history of volatility, investors are expected to become more cautious about what they purchase, she added.
“It’s a seller’s market right now, but the tide could swiftly change to a buyer’s market, especially if interest rates rise (further),” Nemen said, predicting that investors will turn to 1031 exchanges from multifamily properties into triple-net retail properties in 2016 in an effort to minimize risk and hedge the anticipated impact from rising interest rates.
Meanwhile, the lease up process will likely be rougher sledding for developers of the hundreds of new apartment communities wrapping up construction across the U.S. in the coming year. In the fiercely competitive market, project stabilization will take longer, with evidence already mounting that leasing in some recently built communities is already lagging.
As of third quarter 2015, properties built in 2015 had an average vacancy rate of 35%, which is 7% higher than the vacancy rate of properties delivered in 2014 marketed during the same time last year, according to CoStar data.
In CBDs and secondary business submarkets where the vast majority of construction is taking place, new deliveries are twice as likely this year as compared to 2012 to have a rent premium of 5% or higher compared with the next-most expensive building within the same submarket, according to CoStar Portfolio Strategy. While the rental rates reflect the highest quality of construction, demand may suffer as the rents on new units move far beyond the reach of all but the highest-income rental households.
New supply is already beginning to slow down in many metros, according to Christine Espenshade, managing director in JLL’s Baltimore office, who specializes in representing owners in multifamily investment sales in the Mid-Atlantic region. Meanwhile rents and income on existing properties continue to rise, even though absorption has been at all-time high levels, Espenshade said, adding that rental rates and development will flourish in suburban markets over the next year.
Kimberly Roberts Stepp, principal with Long Beach, CA-based Stepp Commercial, is not quite so bullish on the investment sales front.
“We expect that multifamily real estate will have another strong year in 2016, but in the latter part of 2015, we began to feel a marked slowdown in the aggressiveness of buyers,” Stepp said. “The high-priced deals that were trading in weeks, if not days, earlier in 2015 are now languishing on the market.”
“It is our opinion that as the wave is cresting in terms of pricing, many sellers will come out of the woodwork this year so as not to miss the boat on this historic peak,” Stepp continued. “Demand will be there, but we believe buyers are beginning to be more discerning about their purchasing and properties may stay on the market for longer periods.”
For example, multiple apartment property owners in Santa Monica and L.A.’s Westside are reporting that tenants are not responding to their high asking rents, adds colleague Aynsley Armbrust, vice president with Stepp Commercial. That sentiment is echoed by the National Association of Realtors, which projects that landlords will continue to see a moderate increase in rent in 2016, though at a decreasing rate from previous years.
Several apartment investors noted that rising rents and the continued focus of developers on luxury developments have nudged many renters into seeking older Class B communities that offer similar services and amenities as Class A properties but at a more affordable price.
“Nationally, effective rents at Class B communities are estimated to be nearly 30% below those of Class A, making them especially appealing to millennials and other cost-conscious renters,” said David Schwartz, co-founder and CEO of Waterton, a real estate investor and property management company with a focus on multifamily and hospitality properties. “Underscoring the demand for older units is the Class B vacancy rate, which began trending below that of A communities in the first half of 2014.”
FROM ME:
Phoenix Commercial Real Estate and Investment Real Estate: investors and Owner / Users need to really know the market today before making a move in Commercial Properties or Investment Properties in Phoenix / Tucson / Arizona, as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land in Phoenix / Tucson / Arizona. Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial Properties and Investment Properties.
I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group. I also sold hundreds millions of dollars’ worth of Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also international. Click here to find out what is a CCIM: https://en.wikipedia.org/wiki/CCIM
1
http://walter-unger.com/?p=15472
2
Click here to find Reasons to Consider me for Commercial Referrals
http://walter-unger.com/?p=15010
3
Click here to View My Listings and Profile
http://www.loopnet.com/profile/14101172900/Walter-Unger-CCIM/Listings/
4
Click here to find out what is a CCIM:
https://en.wikipedia.org/wiki/CCIM
5
Click here to view my website:
6
Click here for Map of Apartments for Sale (10+units)
http://www.easymapmaker.com/map/c2d8e018a34f1d46bfb692437bd4753f
7
3rd QTR 2015 GREATER PHOENIX APARTMENT OWNER’S NEWSLETTER Kasten Long Commercial Grpup.
8
Click here: No Slowdown in New Construction in Q3 – Apartments
http://walter-unger.com/?p=15073
9
Click her to join my mailing list :
Walter Unger CCIM – walterunger@ccim.net – 1-520-975-5207 – http://walter-unger.com
WHY PHOENIX ARIZONA : ???
http://walter-unger.com/?p=13391
1
Timeline of Phoenix, Arizona history
http://en.wikipedia.org/wiki/Timeline_of_Phoenix,_Arizona_history
2
http://en.wikipedia.org/wiki/Phoenix,_Arizona
3
Facts of Arizona – year 1848 to 2013
http://walter-unger.com/?p=9507
Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.
walterunger@ccim.net 1-520-975-5207
Check out my professional profile and connect with me on LinkedIn.
https://www.facebook.com/ungerccim
https://twitter.com/Walterunger
https://plus.google.com/u/0/b/114560883588623379451/
Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
Please reply by e-mail walterunger@ccim.net or call me on my cell 520-975-5207
Walter Unger CCIM
Senior Associate Broker
Kasten Long Commercial Group
2821 E. Camelback Rd. Suite 600
Phoenix , AZ 85016
Direct: 520-975-5207
Fax: 602-865-7461
Reasons to Consider me for Commercial Referrals
Delivering the New Standard of Excellence in Commercial Real Estate
- Commercial Real Estate Scottsdale
- Commercial Real Estate Phoenix
- Commercial Real Estate Arizona
- Commercial Investment Properties Phoenix
- Commercial Investment Properties Scottsdale
- Commercial Investment Properties Arizona
- Land Specialist Arizona
- Arizona Land Specialist
- Land Specialist Phoenix
- Phoenix Land Specialist
- Land For Sale Phoenix
- Land for sale Arizona
- Commercial Properties For Sale Phoenix
- Commercial Real Estate Sales Phoenix
- Commercial Properties Phoenix
- Commercial Properties Arizona
- Commercial Land Specialist Phoenix
- Commercial Land Phoenix
- Multifamily land Phoenix
- Retail Land Phoenix
- Industrial Land Phoenix
- Land Commercial Phoenix
- Land Retail Phoenix
- Land Industrial Phoenix
- Land Multifamily Phoenix
- Industrial Land for sale Phoenix
- Land Industrial
- P
- Investment Real Estate
Disclaimer of Liability
The information in this blog-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.