Apartment Market Weathered ’09 Reasonably Well: IREM

Dees Stribling, Contributing Editor

Chicago–Though the apartment industry has seen better years, 2009 wasn’t a terrible one in a number of ways for the industry, according to a new benchmarking study published by the Institute of Real Estate Management (IREM). The study found that, on the whole, total expenses increased in low single digits in 2009 from the prior year, while at the same time gross possible rents for most kinds of apartment buildings also rose in the low single digits.

The study, called the “Income/Expense Analysis: Conventional Apartments,” analyzes the previous year’s operating income and cost figures for 2,930 multifamily rental properties representing over 615,000 units across the United States. All variety of properties are represented, including garden; low-rise 12-to-24 units; low-rise, 25-plus units; and elevator buildings.

Among the main findings of the study, a 2009 vs. 2008 comparison of vacancy and rent loss as a percentage of gross possible income shows a minor increase for all conventional apartment types. Of course, different places reported different experiences in this regard. The lowest vacancy and rent loss level in the U.S. was in Washington, DC, where a median vacancy and rent loss of 5.2 percent or less of gross income was reported in 2009 for two of the three building types for which data was available.

Concurrently, owners of all four building types found them just slightly more expensive to operate in 2009 than in 2008, IREM found. Total expenses for garden apartments rose 2.5 percent to $5.26 per square foot; those for elevator buildings increased just 1 percent to $7.40 per square foot; those for low-rise buildings with 25-plus units were up 3 percent to $5.13 per square foot.; and those for low-rise buildings with 12- to-24 units rose 1.8 percent to $5.20 per square foot.

All four building types examined saw rents rise slightly from the prior year. Low-rise buildings with 12-to-24 units reported the largest increase, 8 percent, raising the rent per square foot to $11.35. Rents in low-rise buildings with 25 or more units increased 1.9 percent to $10.22 per square foot; those for elevator buildings increased 1.6 percent to $14.26 per square foot; and those for garden buildings rose 3.6 percent, to $10.78 per square foot.

The study also found that for all building types in 2009, less than 53 percent of a typical property’s annual collections were used to cover operating costs, versus less than 54 percent in 2008. Operating ratios remained relatively stable, with low-rise buildings with 25-or-more units experiencing the largest change, a gain of 1.5 percent, rising to 52.7 percent. Elevator buildings were the only building type to report a decrease, slipping 1 percent to 51 percent.

Despite, or maybe because of the wider economic turmoil, three of the four building types examined experienced an increase in tenant turnover in 2009 compared with the year earlier. Turnover for low-rise buildings with 12-24 units increased 14.1 percent, rising to 52 percent; that for elevator buildings rose 3.6 percent to 42.6 percent; and that for garden buildings rose 1.4 percent to 54.3 percent. By contrast, turnover in low rise buildings with 25-plus units declined 2.4 percent to 49.4 percent.

Though there have been a spate of optimistic predictions for the apartment industry lately–and this report seems to support that assessment–its authors are careful to note that the report’s data on the state of the industry in 2009 doesn’t make “any interpretations as to what it might portend for the future,” a spokesperson for IREM tells MHN.