An obvious reason is talked about in the news every day. People are losing their houses to foreclosure and they have to find shelter for themselves and their families in a hurry.
While they may lack sufficient funds to make high mortgage payments , they can probably cover the monthly rent somewhere. And if credit is eliminated as an issue, then there are thousands of potential tenants about to be lined up at the rental offices.
Vacancy rates declined.
No wonder the vacancy rate declined from 8% in 2009 to 6.2% during the last quarter of 2010. That low rate was last seen back in June 2008. More than 40,000 new units rented this quarter, which, according to past statistics, has not occurred in any quarter since 1999,
Contrast this demand against fewer than 6,000 new units hitting the market. On a supply demand scale, it appears demand for apartment units is way up.
Loans for multifamily buildings increasing.
According to Bloomberg, most of the current construction loans from investors and applications for construction permits to cities that cities are issuing are for multifamily buildings.
Real Estate research firm Reis showed rents increasing over 5% in California, with Virginia suburbs and New York City closely trailing that increase. While New York, as usual, showed vacancy rates as low as 2.8%, Memphis TN trailed at a rate of 11%. Nonetheless, there are homeowners in every city soon to be own their way to fill in those vacancies.
Foreclosures are not going away soon
Homeownership rates declined by almost 4 million househoplds – from just over 69% to close to 66%; and developers are already aware of this. Publicly traded Avalon Bay Communities has already begun breaking ground on more than 2400 units across the country.
As demand for multi-family housing increases, prices on existing properties will likewise increase. In Florida, that demand can be seen in decreasing inventories, but pricing still remains relatively reasonable.
Commercial sales climbing.
Not only is multi-family property ready to surge, but, according to PriceWaterhouse Coopers LLP, so is every segment of commercial property.
Because of low interest rates and business optimism, investors see long term growth. Before competition from buyers who follow, rather than lead trends, develops, savvy investors are picking up properties now.
Despite predictions of doom in the commercial market, overall prices leaped over 18% during 2010, based on figures from MIT Center for Real Estate. Expected commercial sales this year may see up to a 40% increase.
While cap rates may remain steady or decline slightly, the lack of new construction will help to fill in the gaps in office and retail space as we head toward the end of 2012.
For those who have been standing at the side of the commercial pond testing the temperature with their toes, it appears that it is now time to jump in…before the pond is filled in and turned into an apartment complex.
Marc Jablon, The Jablon Team