Dees Stribling, Contributing Editor
Atlanta–Anecdotal evidence suggests that most apartment markets are gathering steam, contrary to other kind of income-producing real estate, and now data is being published to support that notion. Apartment Realty Advisors’ third quarter 2010 market update, which was released this week, finds that apartment-market fundamentals are strengthening. During the quarter, most markets are experienced increases in both effective rents and occupancies.
In fact, 25 of the 30 markets that the report examined experienced increases in effective rents during 3Q10 compared with 2Q10. Only five markets–Cincinnati, Dayton and Columbus, in Ohio, along with Las Vegas and Salt Lake City–experience no quarterly change. Significantly, no markets saw a drop.
Apartment occupancies are also on the rise, generally speaking. Twenty-one of the markets studied by Atlanta-based ARA saw increasing occupancies, while eight registered no change. Only one metro market, Portland, Ore., saw a decrease in occupancies.
New construction, on the other hand, is quite stagnant, according to the report. Only one of the 30 markets, Boston, saw an increase in new construction. The vast majority of the markets saw no change and the rest saw a drop from sluggish to even more sluggish construction activity.
“Public REITs have a few new developments underway, generally on owned land,” Gary Kachadurian, chairman of ARA, tells MHN. “However, for the majority of developers, lenders are unwilling to trend rents forward enough to make new construction viable. The first markets that might show signs of new construction are markets where the ability to acquire below replacement cost has evaporated, like Washington, DC.”
Investors have certainly noticed the upside potential of apartment properties, Kachadurian adds, especially with so few new projects in the pipeline. “For many apartment brokerage companies, transaction activity in the second half of 2010 may be double that of the first half,” he notes.