The U.S. housing market recovery continues and the multifamily sector is also seeing its share of new growth. Analysts say developers will have created 145,000 new units in 2013 with more in the pipeline, but demand is keeping apace. The new units and as well as those planned for the years to come are being absorbed by people who are looking to rent rather than buy, especially in urban areas where home costs are high. Rents are residing despite a flood of new units in places like Seattle, Austin, Raleigh and Washington, D.C. For more on this continue reading the following article from National Real Estate Investor.
Make no mistake—developers are building a lot of new apartments. But demand is more than strong enough to absorb the new supply, according to the latest from leading apartment analysts.
“We are having a very stable recovery. Our fundamental look very positive, very strong over the next seven, eight, ten years,” says John Sebree, vice president and national director of the national multi housing group for Marcus & Millichap.
The apartments in the first wave of new construction are already opening their doors. Developers will finish an estimated 145,000 new units of multifamily housing this year. That’s well above the level new construction over the last few years. So far, demand for apartments is easily absorbing the new supply. The percentage of vacant apartments remains hovers at just 4.7 percent, according to Marcus & Millichap.
Developers continue to start construction of new apartments that will probably open two years from now—though the volume of these new projects started this summer is slightly less than researchers anticipated.
“The market is self-correcting, somewhat,” says Stephanie Sutton, research manager for Axiometrics Inc. June was an especially slow month—developers started construction on just 13,566 units. That’s a steep drop from January when developers started work on more than 22,000 units, according to Axiometrics’ count, which includes just conventional rental properties with more than 50 units. Construction has hardly ground to a halt, however. Starts were back close to 20,000 again in July.
“Multifamily starts tend to be pretty volatile,” says Mark Obrinsky, senior vice president for research and chief economist for the National Multi Housing Council. The long-term trend shows developers starting work on more and more apartments as the economy recovers. Obrinski counts the number of apartments developers started building over the last 12 months, without a seasonal adjustment. In August, that number reached 227,500. “You have to go back to October 2008 to see a number that large,” says Obrinsky. “We continue to gradually increase the volume of new construction.”
Demand for apartments rising too
Fortunately there is no shortage to renters to move into these apartments. “The increase in demand is running just over the increase to supply,” says Obrinsky.
The pent up demand for apartments hasn’t gone away. In fact it’s larger than ever. Every year, more young people graduate from college into a weak labor market—many move back home. The number of young adults living with other family members to 22.5 million, about 4 million above normal. As the recovery strengthens, many will move out. Although not every young adult will rent their own apartment—adding 4 million people back into the renter pool will dramatically boost demand.
“Although construction has elevated, even the fastest growing markets will face few issues in absorbing the additional units,” says Marcus & Millichap’s Sebree.
Many analysts expected a flood of new apartment properties to flood the Seattle market this year. However, the metro area continues to have few vacant apartments and rent growth of 7.6 percent. “I’ve been surprised by the strength of the Seattle market,” says Jay Denton, vice president of research for Axiometrics.
Strong job growth in Seattle has filled its new apartments—the city created jobs in July at a rate of 46,900 jobs per year, up steadily from prior years. The city is on track to provide 6.13 new jobs for every new apartment that opens in 2013—a very strong showing that will probably attract more new development, according to Axiometric.
“I think we are going to see round two of construction in Seattle,” says NMHC’s Obrinsky.
Austin will face the steepest inventory gains this year with inventory rising 4.8 percent in 2013, but exceptional employment growth will support strong demand, restraining vacancies to just 5.8 percent by year-end. “You have a lot of new units, but you have an enormous amount of jobs being created,” says Marcus & Millichap’s Sebree.
Washington D.C. will add the second most units in 2013, with 12,000 new units coming on line this year, but again, forecast vacancies will advance just 40 basis points to 5.0 percent. Federal budget cuts are also restraining job growth and wage increases, which is holding back rents, according to Marcus & Millichap.
Rent growth is also strong in Raleigh, N.C., despite significant new supply of more than 4,200 apartments in 2013 and relatively weak job growth. Some experts wonder if the Bureau of Labor Statistics may have missed some new jobs that would account for the high demand for apartments. “The BLS often revises their figures,” says Axiometrics’ Denton.
This article was republished with permission from National Real Estate Investor.