Absorption in Cincinnati Expected to Reach 14-Year High as Manufacturing Booms
- Dec 06, 2012
The City of Seven Hills is witnessing a surge in manufacturing positions that is translating to heightened employment overall and a sustained demand for rental units. Marcus & Millichap notes that for every manufacturing position that is created, approximately two spin-off jobs are realized in another industry in the local economy.
Furthermore, the increase in manufacturing employment comes as a result of the rising costs of making goods overseas and the weakness of the dollar relative to the Japanese yen and other currencies. Honda, Toyota and Nissan recently began shifting assembly plants from Japan to North America, bolstering a long-fledgling industry.
The number of jobs added so far in 2012 stands at 26,300—translating to 2.6 percent growth and considerably higher than the 17,200 positions that were created in 2011. Marcus & Millichap projects that by the end of the year, the local unemployment rate should shrink to the mid-6 percent range.
With such encouraging signs in employment, demand for apartments is expected to gain steam, with an overall 90-basis point decline in vacancy projected for 2012. The resulting 4.4 percent vacancy rate represents the tightest rate in 12 years, with the Class A rate falling even lower—to 4.1 percent. Marcus & Millichap notes that the market is likely to absorb the most apartment units in 14 years by the end of 2012.
Rising faster than occupancy, however, are respective rent rates across the city. Asking rents are expected to have risen 3.2 percent by year’s end to $735 per month, while effective rents are expected to rise 3.6 percent to $700 per month. The downtown area posted the largest annual increase in effective rents at 4.6 percent, translating to $772 per month.
Additionally, construction in the city has been sluggish ever since the onset of the financial crisis, with inventory rising less than one percent per year since 2008. Marcus & Millichap reports that output will reach a total of 1,000 units by the end of 2012, driving up existing inventory by 0.9 percent. However, a significant number of new projects is expected to push inventory up an additional 3.2 percent over the next few years, giving breathing room for high demand, and thus, high rents.
In terms of overall occupancy, the submarket performing the best is the Northern Kentucky area—with a vacancy rate of 2.8 percent and average effective rent of $697 per month. This area saw a marked 110 basis point dip in vacancy over the past year, indicating rising popularity in recent quarters.
The submarket that performed the worst was the Southwest area, with a 6.5 percent vacancy rate and markedly low effective rent of $535 per month. However, even this area saw a 120 annual basis point dip, reflecting widespread positive performance for multifamily across a number of local regions.
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