Restrained development, an unsettled single-family housing market, and growing rental housing demand are driving a robust turnaround in the Hartford multifamily sector, making the market one of the strongest in the country. Vacancy will fall to less than 3 percent in 2012, enabling property owners to raise rents significantly. Some of the greatest gains will likely occur in the North/West Hartford and South Hartford/North Middlesex submarkets, where vacancy rates are less than 3 percent. Overall, vacancy and rents have likely improved sufficiently to justify construction, and many planned projects may accelerate through the pipeline in the quarters ahead.
The track record of recently delivered projects will likely embolden developers. For example, in the North/West Hartford submarket, vacancy fell 60 basis points last year after a 264-unit complex came online. The multifamily sector is also getting a lift from the still-struggling single-family housing market, where sales volume fell 20 percent last year. Mortgages remain hard to obtain, and many would-be homebuyers will remain in rentals for an extended period as a result.
The Hartford market continues to attract attention from investors, perhaps to a greater extent than other markets of similar size. A slight decline in transaction velocity over the past 12 months most likely reflects a lack of product available for sale rather than a waning desire to obtain local properties. Low interest rates and the expanded availability of acquisition financing are sparking interest, and many owners will find a competitive bidding climate for well-performing assets in sound physical condition.
Cap rates for most assets generally sit in the 7 percent range, but will likely compress as a result of keen competition. Properties located in strong and established residential communities in the western half of the metro will garner attention due to the stability and desirability of the neighborhoods where they are located. Elsewhere, properties in the city of Hartford have also enjoyed the turnaround in property performance and appear poised to remain high-demand locations for recent college graduates.
Employment: Through year’s end, employers will add 5,500 positions, expanding total employment 0.9 percent and restoring payrolls to the pre-recession peak. In 2011, 7,100 positions were created.
Construction: Developers will bring online 270 market-rate rentals by year’s end; 264 units were delivered last year. The planning pipeline contains 2,500 units, though no start dates are currently scheduled.
Vacancy: Residents will move into rentals at a robust, albeit somewhat slower, pace in 2012, reducing vacancy 50 basis points to 2.8 percent. The rate plunged 140 basis points during 2011.
Rents: Asking and effective rents will each surpass the $1,000-per-month threshold this year, with asking rents rising 4 percent to $1,041 per month and effective rents gaining 4.4 percent to $1,005 per month. In 2011, asking and effective rents rose 2.1 percent and 2.4 percent, respectively.
— Steve Witten is a senior director of Institutional Property Advisors, a division of Marcus & Millichap
Real Estate Investment Services. Witten is located
in the firm’s in the New Haven office.