Despite Lagging Economy, Memphis Apartment Rental Rates Continue to Grow
- Jun 13, 2014
Although struggling with a higher than the national average unemployment rate of 8.1 percent, apartment fundamentals in Metro Memphis have improved throughout 2013 and the Q1 of 2014, according to a report by Hendricks-Berkadia. The local job market went through somewhat of a rollercoaster ride in 2013, with local employers adding 3,500 jobs, an increase which was severely hampered by a government sector contraction of 2,800 positions. This, however, is expected to significantly improve in 2014, with the addition of 10,200 new jobs to the local market, which will further improve local apartment market prospects
One of the most positive changes in the Bluff City’s apartment market was registered in the rental department, with rates experiencing a 1.9 percent year-over-year growth, checking in at a metro average of $792 per month in March 2014. At first glance the 1.9 percent rent growth might seem surprising considering that the greatest appreciation experienced in the Riverside submarket, ticked in at 7.8 percent. The negative rent growth that affected a third of the submarkets of Metro Memphis, however, hampered that number. The most affected of all submarkets was South Memphis, where rents contracted by 2.1 percent to a current rate of $492 per month. By comparison, the same submarket boasted a $502 monthly rate and 4.3 percent growth in Q1 2013. Cordova and the Whitehaven/Airport/Southhaven submarket also experienced a slump in rents, the latter continuing its rental depreciation trend from Q1 of 2013, when it contracted by 1.9 percent. On the same note of consistency, Memphis’ most expensive submarket, Riverside, was on the uptick a year ago as well, with a healthy 3.5 percent growth. It now boasts rental rates of $1,051, compared to 2013’s first quarter’s $975 and is the only Memphis submarket with a four-figure average rental rate.
Vacancies in Metro Memphis also improved, albeit by only 10 basis points to a current level of 7.5 percent. The submarket of East Memphis/University boasts the lowest vacancy rate at 2.8 percent, a year-over-year decrease of 230 basis points. Southeast Shelby County/Ridgeway has the highest vacancy rate at 11 percent, a year-over-year increase of 90 basis points. Whitehaven/Airport/Southhaven takes the top spot in occupancy increase rates, managing to almost cut in half the 16 percent vacancy rate to 8.4 percent within a 12-month span. Rents are expected to grow at a steady pace in throughout 2014 in Memphis, while vacancies are expected to continue their overall downward trend.
According to Hendricks-Berkadia’s report, permit issuance also boasts a year-over-year positive growth with permits issued for 360 units ̶ an 8.7 percent increase. Multifamily permitting is expected to decrease and stay at low levels, as developers aim to keep near-term supply under control. Projects from early 2014 put the number of permit requests at the 950-unit mark for the entire year, higher than the average 830 permits per year experienced by Memphis in the five post-recession years. 2014’s permit projections, however, are still significantly lower than the pre-recession annual average of 1,500 permitted units. A big chunk of this year’s newly started multifamily projects is represented by the recently announced expansion of Fieldstone Apartments. Owner Michael Lightman Realty Co. announced an over 300-unit addition to the 901-unit apartment community in three-phase expansion that, upon its 2016 completion, will crown the community as the city’s largest. Also targeted to break ground in 2014 is the $100 million conversion of the former Union Planters office high-rise into a hotel and apartment mixed-use development, that would significantly increase the CBD apartment stock and the city’s luxury apartment rental pool, considering 20 floors of the structure’s 38 total will be converted to apartments.
Q1 2014 saw 50 unit completions, all in the Poplar Pike/Germantown/Cordova submarket. The remainder of the year is expected to bring 600 more units unto the market.