As residential real estate continued to slump in the third quarter of 2007, the multifamily industry continued to soar, proving that the two industries remain headed in opposite directions at least for now. Occupancy, street rents, construction and absorption all registered healthy gains during Q3, according to the latest data from CB Richard Ellis Memphis' multifamily division. CBRE tracks apartment buildings of 100 units or more.
But how much the housing market's losses translated into multifamily gains remains unclear. While foreclosure victims or people wary of buying homes in this shaky housing market might seem like rental candidates, the slowdown hasn't produced the mass migration some might expect. "Surprisingly, we have not seen much impact from the housing slump," said Mark Fogelman, president of Fogelman Management Group. "In most cases, individuals who are having trouble with their mortgage payments will have a very difficult time qualifying for an apartment. Therefore, we do not expect a surge of prospects fleeing troubled mortgages and moving into our apartment communities."
Still, the apartment industry has prospered in 2007 and the sagging home sales helped contribute at least a portion of the multifamily upswing, said Blake Pera, senior vice president for CBRE's multifamily division. "Many apartment owners and operators have mentioned how it is expected to improve operations - many properties are experiencing an increase in traffic," Pera said. "This should turn to additional leases and higher occupancies. Our third quarter report showed an increase in occupancy in the C market, which may be attributed to the subprime fallout."
Occupancy in Memphis apartments rose 1.7 percent from year-end 2006, reaching 91.4 percent market-wide and 93.8 percent for Class A and B properties - newer complexes that offer more amenities - by the end of Q3. While A and B product carried the rest of the market with regard to occupancy, the same could be said for rents. The average rent increased 1.3 percent from year-end 2006 to $691 per unit market-wide, and $773 per unit for A and B.
With a growing demand for apartments and a possible slowdown in construction, rents might see an even greater rise in the final quarter of 2007 and into the new year. "It seems logical to expect an increase in rents - at least a continued increase in revenue at properties," Pera said. "It is possible that concessions could also be lowered as demand increases - this effectively increases rents that residents pay."
It all points to a fairly healthy apartment market with signs of continued steadiness ahead. "Our pipeline is pretty much in balance at this time," Pera said. "New properties coming online in 2008 should be few in number and easily absorbed without creating an imbalance in supply/demand." The Q3 report shows the Germantown/Collierville submarket displayed the strongest rent growth in old construction (properties built prior to 1984) with a 3.5 percent increase. Meanwhile, the Downtown submarket showed the strongest growth for 1980s construction (properties built between 1984 and 1992) with a 5.5 percent increase, as well as new construction (properties built since 1993) with a 7.5 percent increase.
Pera said he believes those trends will continue into 2008. "The areas performing well (i.e., Downtown, Germantown/Collierville) will continue to do well," he said. "Other areas, like Memphis' C submarkets, should continue to show improvement as the demand for affordable rental housing increases." The demand will be aided by slowing construction. Though construction was up 1,095 units for the month, it should taper off significantly. Also, absorption is a positive 401 units through the end of Q3, with A and B leading the way at 231 units.
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Source: Daily News