its highest level in 26 years.
Heidi McKibben Green, vice president and head of multifamily production at Fannie Mae in Washington, DC,
concedes that the industry is seeing
higher vacancies and lower
rents, as much as 6% to 10%,
depending on the location.
Still, she maintains, occupancy rates of 90% and higher
in most markets is much better than the rates posted during the recession of the early
1990s, when many empty
units were simply the result of
oversupply.
How much longer this
trend will continue remains
to be seen, since the lack of
job growth is putting pressure
on the market. “People are
doubling up, moving back
home and sharing apartments
in greater numbers than they would
like,” she notes.
In the short term, she anticipates continued downward pressure on occupancy
rates and rents for at least another 12 to
18 months. “I don’t think we are going
to see significant enough job growth to
create a meaningful increase in those
numbers in the very near future,” says
McKibben Green.
She did offer one significant caveat,
however: supply-constrained markets
will fare better in the short term than
“Most economists
believe that on a
nationwide basis,
2010 will be another
difficult year with
respect to revenues
and NOIs.”
MITCHELL KIFFE
Freddie Mac
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other areas. “New York has fared better
than most people expected because
there weren’t as many job losses and it is
a supply-constrained market. People are
forced to rent because of the high cost of
single-family housing there,” she says.
Other markets that will fare well in
2010 include San Francisco, Los Angeles
County, Orange
County and San
Diego, which all
have tight supply of
multifamily housing. Also on the list
is the Washington,
DC Corridor,
thanks in part to
the dramatic
increase in government spending that
will continue to
boost the regional
economy.
On a national
level, vacancies in
rental residences,
according to the
US Census Bureau,
rose from 10.1% in
the first quarter of
2009 to a record
high of 11.1% in
the third quarter.
A year ago, that
rate stood at 9.9%.
Likewise, the
National
Association of
Home Builders
pegged the current
MULTI
FAMILY
rental vacancy rate for buildings with
five or more units at an all-time high of
13.1%. NAHB officials say the average
vacancy between 1989 and 2009 has been
around 10%.
Meanwhile, the market
tightness index, part of the
National Multi Housing
Council’s Quarterly Survey of
Apartment Market Conditions,
came in at 31 for the third
quarter. Although that’s an
improvement over the prior
quarter’s score of 20, any figure under 50 indicates that
conditions in most markets
are worsening, with higher
vacancies and lower rents.
There were positive signs,
however, in NMHC’s other
indices. The sales volume
index, which measures investment activity, hit its highest
level in four years, while the index measuring the availability of debt and equity
capital was at its highest point in three
years.
“The broad improvements in sales
volume and debt and equity financing
suggest the transactions market may
finally be thawing,” says NMHC chief
economist Mark Obrinsky, adding that
45% of survey respondents indicated
that the bid-ask spread for rental assets
has narrowed. “But the economic headwinds remain strong as the employment
market continues to sag and demand for
apartment residences continues to slip.”
There may be improvement on the
transaction side, he states, but “to be
fair, we are talking about improvement
from really, really low levels. This is nothing at all like what we saw in 2006 and
2007. And it isn’t even back to the levels
of 2003, so there is improvement, and
that is certainly good, but we haven’t
seen the market really return to the kind
of vigor we would hope to see.”
Similarly, the financing climate is an
improvement over “levels that most people haven’t seen in their lifetimes.”
On the construction side of the equation, things are getting better, but
demand for new units continues to be
weak. The National Association of Home
Builders’ multifamily market index,
released last month, reports that rental
indices for the third quarter of 2009 are
higher than the same period a year ago,
but are all below the 50 mark. The organization’s multifamily indices have been
running below 50 since the third quarter
of 2007 and its condo index has been
