Scary Times?

By Teresa O’Dea Hein, Managing Editor

Being scared is socially acceptable this week, with Halloween creeping up fast. But with job losses and fewer households being formed and tighter credit, even multi-housing executives are wise to be nervous.

FDR’s famous phrase about “the only thing to fear is feat itself” has taken on new life, to the point where one of the New York daily newspapers printed it on its cover a few weeks ago after one of the stock market’s big declines.

Plus, we should remember that many aspects of property management are controllable. For example, addressing maintenance/service needs promptly and with timely communication has often been cited as a key way to improve resident retention.

Still, while the apartment industry has fared better than other real estate sectors this year, the weakening economy is beginning to affect the sector. According to the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions, "Nine straight months of job losses have begun to cut into the demand for apartment residences," says Mark Obrinsky, NMHC’s vice president of research and chief economist. "While favorable demographics and a lower homeownership rate will benefit the apartment industry over time, owners and managers will first have to work their way through the current economic downturn before the benefits of that increased demand are likely to show up.”

The NMHC Market Tightness Index, which measures changes in occupancy rates and/or rents, dropped significantly from 40 last quarter to 24. This was the fifth straight quarter in which the index has been below 50. (For all of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.)  In the previous four quarters, however, roughly half of respondents viewed market conditions as unchanged; this quarter less than one-third reported unchanged conditions, suggesting that the current situation is less stable.

So now it’s even more essential to ramp up property management performance and show the economic value of professionally managed assets. 

And, according to an "Apartment Trends" report by Property & Portfolio Research, vacancies slipped by 10 basis points to 6.2 percent in the second quarter of 2008.

“A soft job market, an increasing pace of apartment completions and persistent shadow supply were the three main reasons for this trend,” explains Michael Cohen, research strategist. However, even at the current level, vacancies are a far cry from a cyclical high of 7.4 percent, reached in late 2003. Vacancies are expected to approach the high 6 percent range by end of this year before finding some stability in 2009, PPR predicts.

Even so, ghosts of recessions past haunt current events. Quick, pass the candy corn.