Apartment Market in the Long Game
We might suggest that 2014 will not outperform the success the apartment industry has enjoyed in recent years but it will still prove a good year. Reasons for a slight slowdown in the shinning performance of recent years are:
Delivery of new Class “A” product – 231,000 units in top 100 markets – largest level of completions to come online in quite some time.
Job growth has not kept pace with rent increases – making it difficult to sustain aggressive rent increases
Analysts expect average vacancy to fall by 40 to 50 basis points. That should still leave most markets better than 94% with B and C class properties outperforming A properties. Analysts have indicated that class A properties should anticipate 2.5% effective rent growth while class B and C properties should enjoy closer to 3.5% rent growth. This is a new trend worth keeping an eye on.
The upside of this business cycle should crest for a much longer period of time than prior ones due to both a trend of higher demand for apartments and economic conditions that deter homeownership. Much of the apartment stock coming on line in 2014 is the result of projects tabled during the Great Recession.
Despite a slight slowdown, we will likely toast to another good year in December 2014.