ARA Report: National Apartment Market is Looking Up–Finally

Atlanta–It appears the worst is over, according to the Apartment Realty Advisors’ (ARA) second quarter 2010 U.S. Apartment Market Update.

Numbers don’t lie. From the first to the second quarter, occupancy levels rose in 73 percent of the 30 major metropolitan markets that ARA surveys. The most telling numbers, perhaps, concern rental rates. Effective rents in all ARA markets headed upward or, as evidence of stabilization, held steady. “And to think that just 15 months ago we reported that 23 out of 24 markets had decreasing effective rents and occupancies are unchanged,” Gary Kachadurian, chairman of ARA, writes in a his quarterly chairman’s letter. “What a turnaround!”

The Boston area was one of the most successful markets in the second quarter. Effective rents rose, occupancy levels rose, and there was even just a bit of new construction. “Since we’re starting to create jobs in eastern Massachusetts, we’re starting to see an increase in rents and a decrease in concessions and vacancies,” Richard Robinson a principal with ARA, tells MHN. “We do have several new starts that are occurring, but construction is relatively nominal compared to the years between 2005 and 2007. So the market’s improvement is due to jobs and a relative lack of new construction.”

Improvement in the national apartment market extends beyond the increasing rents and declining vacancies and concessions; sales are on the rise as well. “All of our brokers in the northwest have seen an increase in sales over the last 60 days, a larger increase than we’ve seen over the last 12 months,” Kachadurian tells MHN. “It’s a combination of a decrease in cap rates and the increase in the availability of really attractive debt. Most of the debt is coming from Fannie Mae and Freddie Mac, but insurance companies are interested in reentering the market. They’re providing loans, but on a lower loan-to-value ratio.”

Kachadurian anticipates that sales will continue on the upswing, with transaction volume in the second half of the year outpacing numbers in the first half. “Operationally, effective rents are increasing, concessions in a lot of markets are decreasing or going away altogether, so the better revenues along with lower cap rates and better debt translate into a magical triangle and sellers are really able to get much higher values for their properties.”