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Low vacancy persists in the Fairfield and New Haven county apartment sector behind respectable job growth and the accompanying creation of new rental households. Multifamily rentals also continue to derive support from the region’s pricey single-family home market. In New Haven County, rentals remain the most cost-effective housing option for many households and younger residents. An acutely low level of single-family home affordability also exists in the most sought-after neighborhoods in Fairfield County, driving many residents to apartments for extended tenures.
With high single-family prices posing a barrier to homeownership for many households and creating a large pool of renters, multifamily developers are ramping up production, especially in Fairfield County. Thus far, new construction has been rather well received. Vacancy in recently built properties in Stamford/Norwalk was up slightly to the mid-3 percent range this year as complexes coming online stabilized, despite average rents in excess of $2,500 per month. Tight vacancy also persists in lower-priced 1990s-era rentals in the submarket.
By the end of 2013, employers in the market are projected to create 11,500 jobs, marking a 1.5 percent expansion of payrolls. Gains in education and health services, and professional and business services primarily accounted for an increase of 5,400 positions last year. Employment in Fairfield and New Haven counties expanded 1 percent, or by 7,900 jobs, in the first nine months of 2013. Approximately 7,200 positions were added in the corresponding period last year.
Job creation in New Haven County set the pace for the entire market; 4,100 positions were created year to date, expanding payrolls 1.1 percent. In Fairfield County, 3,800 new hires were made, primarily in the professional and business services, and leisure and hospitality sectors.
Developers will complete 1,000 rentals in 2013, exceeding the 493 apartments produced last year. Virtually all of the units slated to come online this year are located in Fairfield County. During the 12 months ending in the third quarter, 564 rentals were delivered in the market, an increase from 500 units completed in the preceding year. Projects brought online this year include the 250-unit Avalon Shelton, which was placed into service during the third quarter.
Approximately 1,800 rentals are under construction in the market and slated for completion at the end of this year and in 2014. In addition, 3,500 rentals are planned.
Demand will outpace additions to stock by a narrow margin this year, trimming vacancy 10 basis points to 4.4 percent. The average rent in the market will advance 3.4 percent to $1,635 per month. Vacancy was flat in New Haven at 4.3 percent in the third quarter, but the level climbed 100 basis points in Fairfield to 4.6 percent. As a result, marketwide vacancy during the period rose 40 basis points to 4.4 percent. However, net absorption of nearly 600 units trimmed marketwide vacancy 10 basis points year to date.
Average monthly rents of $1,631 in the third quarter reflected a 3.1 percent increase thus far in 2013. Properties built before 1970 in New Haven posted a 1.4 percent increase year to date, while 2000s-era complexes in Fairfield registered a 7.0 percent jump to $2,552 per month.
Solid rental housing demand drivers and property performance will support heightened transaction volume in the months ahead. Additional owners leveraged keen investor interest to list and sell properties over the past 12 months. The number of transactions jumped nearly 70 percent during that time, with transactions in New Haven County increasing nearly twofold. Velocity in Fairfield rose more than 40 percent. Dollar volume doubled over the past year. Pricing also rose; the median price of properties sold in the market increased 4 percent to $70,200 per unit.
The two-county market continues to see a volume of transactions and level of buyer interest not observed since before the recession. Investors are competing intently for assets, while owners not previously inclined to sell are increasingly testing the market and successfully executing transactions.
Deal flow and dollar volume are up across most price tranches over the past year, with a greater number of sales of more than $10 million reflecting the presence of well-capitalized large investors and institutions.
Debt is also flowing more freely, as the agencies, portfolio lenders and conduits compete to gain market share. The potential for subpar national economic growth in the fourth quarter as fallout from the government shutdown and debt ceiling impasse will likely delay the Federal Reserve from tapering their bond-buying program. Accordingly, the Fed’s expected inaction in the near-term will hold the yield on the 10-year U.S. Treasury in the mid-2 percent range.
— Steve Witten, executive director of Institutional Property Advisors, a division of Marcus & Millichap Real Estate Investment Services