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A sunny forecast for economic recovery in multifamily housing: the expected economic recovery in the United States during the remainder of 2002 and into 2003 should boost the value of real estate investment and development nationwide. Stolzoff gives a brief forecast of the market in the country's major metropolitan areas, suggesting how each might be affected by the upturn.

Industry experts suggest that most of the nation's apartment markets will improve over the course of 2002 and during 2003, coinciding with a rebounding economy that figures to push rents and values higher.

Also, developers will take a cautious approach toward new projects in order to avoid a devastating 1980s-style round of overbuilding.

"Many U.S. apartment markets are feeling the effects of the recession, but improvement will come as the economy picks up steam," said Peter Kompaniez, President and Vice Chairman of Apartment Investment and Management Co. (AIMCO), whose Denver-based real estate investment trust operates about 330,000 units spread across 47 states.

Alex G. Spanos, Founder and Chairman of A.G. Spanos Companies, said the industry's fundamentals are sound. "Few markets are showing signs of overbuilding, interest rates are low and long-term demand for rental units will remain strong," he said.

Clearly, some segments of the apartment market at midyear 2002 are faring better than others.

"High-end units have been hit by rapidly falling demand due to high-paying job losses at a time when more than 80 percent of new supply has been concentrated in this category," said Harvey E. Green, President of California-based Marcus & Millichap Real Estate Investment Brokerage Co. "They are taking the brunt of vacancy and concession increases, while Class B and Class C owners report more stability."

Though the national vacancy rate could rise to approximately 6.5 percent this year (from 5.5 percent in 2001), Green said nationwide asking rents should H increase about 2 percent and a healthy number of areas will defy the trend by posting strong gains.

Following is a quick area-by-area breakdown, describing what's ahead for some of the nation's largest apartment markets:


Atlanta's multifamily sector during the first half of 2002 was hurt by the opening of several projects that were started when the local economy was stronger, according to Marcus & Millichap, a real estate investment brokerage company based in Encino, Calif.

Its vacancy factor should rise to 8 percent, but positive year-over-year rent growth should return during the second half of the year, or by early 2003, as supply slowly comes back into line with demand.

"Investors betting on Atlanta's future growth prospects remain active despite the market's current softness," Green said.


The vacancy rate in Boston should creep to 4.3 percent in 2002 (from 3.5 percent in 2001), according to investment banker Credit Suisse First Boston.

This primarily is a result of the economic downturn that triggered job losses and higher turnover. But the market's high barrier-to-entry nature is keeping new supply at modest levels, which Marcus & Millichap said should result in rents rising 3.5 percent this year, enabling Boston to continue to be considered a favorite location among long-term investors.


Chicago's overall vacancy factor will climb to about 5.8 percent this year from 5.2 percent in 2001, according to Marcus & Millichap's projections. It said it expects the downtown luxury market to take the biggest hit. Residents seeking to cut housing costs are focusing on Class B and C properties and many institutions are actively seeking rehab opportunities. Overall, average asking rents should rise 3.5 percent, with the best gains posted in the B and C sectors.


Job losses in the technology and telecommunication sectors hit the Denver market hard last year, but vacancies are beginning to stabilize. Though the region's overall vacancy rate is expected to inch up to 11 percent this year from 10.1 percent at year-end 2001, rents should rise about 3 percent nonetheless, according to Phoenix-based Hendricks & Partners.

Though sales may cool as the market goes through its transition, the apartment brokerage and advisory firm said the areas long-term prospects remain good due to its high levels of in-migration and job growth.


At about 4 percent, the Motor City's vacancy factor was among the lowest of all major areas last year. It should rise to only 4.5 percent this year and rents will increase by 2.5 percent, according to Marcus ex: Millichap, as owners seek to keep occupancy levels at a high level, rather than raising rents and therefore risking new vacancies.


The good news is that most Florida areas should see rents increase by 2 percent and 4 percent this year, a rate that is among the highest in the nation. The bad news is that such an increase would be down from the much higher growth many owners enjoyed during previous years.

Many Florida markets have been hurt by moderate overbuilding and job losses in the tourism industry, but the recent pick-up in travel bodes well. The state's long-term prospects remain bright, as its growing population provides support for apartments available at every price level.


The vacancy rate here is expected to rise slightly from its 6.3 percent level in 2001, but the job market is beginning to recover from the sharp drop in tourism and convention activity that occurred after September 11.

Average asking rents are expected to end the year at $730 a month, up modestly from $715 in 2001. Investors are still bullish about the market's long-term potential, citing its above-average growth in population and jobs--and the diminishing number of once-ample land zoned for multifamily construction.


New Jersey's apartment market continues to be among the strongest in the Northeast region of the country, thanks in part to the steady stream of companies that are relocating across the Hudson River and to fast-rising home prices that have made it difficult for renters to become buyers.

The vacancy factor should average 4.1 percent this year. Expected rent growth of 2.1 percent is relatively strong when considering that it includes a vast stock of rent-controlled units. Marcus & Millichap also notes that the big Newark and Bergen-Passaic markets are expected to see the number of 20-29-year-olds--a strong renting age group--to grow in this area by more than 7 percent over each of the next five years.


Though markets around the World Trade Center and Battery Park are struggling to absorb recently vacated units, the local economy is getting back on its feet and area-wide vacancies are expected to stay below 4.5 percent in 2002. Rents should climb 4 percent in 2002, which would be a welcome increase in most parts of the country, but that figure is far below New York City's double-digit gains of years past. New opportunities will arise when the transportation system becomes fully restored as New York City's rebuilding efforts continue.


Vacancies in both San Francisco and San Jose soared last year in the wake of the bust, but the worst appears to be over.

Rents, which dropped by more than 15 percent in some areas during 2001, also are stabilizing. But it's a different story in Sacramento, where continued strong job growth and steady absorption is expected to push vacancies down to 4 percent by the end of this year and send average rents up by a healthy rate of 6 percent.

The Sacramento region is at the top of Marcus & Millichap's 2002 National Apartment Index, which ranks 40 of the nation's largest apartment markets, based on forward-looking supply and demand indicators.


Seattle's job market has been buffeted from cutbacks by its local aerospace and technology companies. Vacancies are expected to rise to about 8 percent by the end of this year (from 6.6 percent in 2001), according to Hendricks & Partners. Rents are expected to rise by only 2 percent. But long-term investors remain bullish about the Seattle market, citing favorable fundamentals that include growth constraints, an affluent population and a vaunted quality of life.


Southern California's diversified economy provided it with a measure of protection against the recent recession and the effects of September 11, leaving its relatively strong apartment markets to improve even more as the recovery begins.

Vacancies across the 40,000-square-mile area are expected to hover in the 4 percent-range this year, with average asking rents increasing by a similar amount. Solid gains at Class B and Class C developments have offset weakness in the high-end sector.

The region's fast-rising population, and the fact that it has a limited amount of area in which to build on, has bolstered its longer-term prospects, too.


Texas's slowing job growth will push vacancies in most of its major apartment markets up into the 8 percent range this year, while asking rents stay flat or rise only slightly.

But new construction is falling, and some investors already are searching for bargains. Prospects for 2003 are brighter: Energy prices should rise with the economic recovery, which in turn would trigger more hiring and greater demand for rental housing.


Strong job growth in Washington's public and private sectors alike should help the Nation's Capital and its suburbs remain among the country's leading apartment markets during the second half of 2002 and into 2003.

The overall vacancy rate this year is expected to rise only slightly, to about 2 percent, while the double-digit rent growth of the past few years will be replaced with solid gains of 5 percent to 7 percent. Apartment values will rise, too, as private and institutional investment activity remains heavy.

Martin S. Stolzoff is a Partner at Real Estate Conference Group, Beverly Hills, Calif., and organizer of Apartments 2002, a daylong conference and networking event scheduled for Sept. 19 at the Beverly Hilton Hotel in Beverly Hills, Calif. This year's conference will include keynote addresses by Peter Kompaniez, and Alex G. Spanos. Information is available at or e-mail
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Comment:A sunny forecast for economic recovery in multifamily housing: the expected economic recovery in the United States during the remainder of 2002 and into 2003 should boost the value of real estate investment and development nationwide.
Author:Stolzoff, Martin S.
Geographic Code:1USA
Date:Jul 1, 2002
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