During the second quarter of this year, the Memphis multifamily market showed signs of growth. Occupancy, rent, absorption and sales were all up from the first quarter of this year. Construction remains relatively flat; however, after three consecutive quarters of no new units coming on line, 114 units were delivered in the second quarter.
“We’re seeing continued improvement in our market,” says Tommy Bronson, III, vice president of the multi-housing group in CB Richard Ellis’ Memphis office. “Due to record low construction levels, we’re seeing positive rent growth, occupancy and concessions burning off.”
The overall occupancy in the second quarter was 92.1 percent, compared to 91.6 percent in the first quarter of 2011. The strongest submarkets are Germantown/Collierville, Downtown and Cordova, which all average in the low- to mid-90s for occupancy, Bronson says.
“In those locations, we are often seeing no concessions now, which is a big deal in the Memphis market because we’ve been a concessionary market during the last few years,” he says.
Bronson adds that Class A and B properties are pushing rents because concessions are burning off. Rents for Class A and B properties rose from $803 per unit in the first quarter of this year to $810 per unit in the second quarter of this year, an increase of 1.8 percent. Overall rents also increased slightly, from $727 in the first quarter of this year to $733 in the second quarter of this year.
Perhaps the largest increase this year has been in property sales, which doubled in the second quarter. In the first quarter there were seven sales of properties with more than 40 units totaling 1,228 units and more than $21 million. However, in the second quarter, there were 14 sales totaling 2,943 units and $104 million.
“During the past 2 years, our primary sales were mostly REO or distressed properties sold on a price-per-pound basis,” Bronson says. “This year, we’ve seen some stabilized, Class A properties coming into the marketplace and being received very well by the investment community.”
Bronson adds that so far this year, CB Richard Ellis has closed four Class A deals compared to only one last year. In July, the firm arranged the $27.82 million sale of the 300-unit Legends at Wolfchase and the $45.5 million sale of the 414-unit Preserve at Forest Creek.
The part of the Memphis multifamily market that remains the slowest to recover is construction. In the second quarter, 114 units were delivered at the Grand Island Apartments in Downtown, compared to zero the previous quarter, and 261 units are slated to come on line before the end of the year.
“Construction is at an all-time low,” Bronson says. “There are a few planned developments here and there but they seem to keep getting pushed back for whatever reason. Even going out of 2011 and into 2012, we’re not expecting robust construction.”
Bronson says that the increase in the job market will help it continue to improve. In the first half of the year alone, 10,000 new jobs were added to Memphis.
“I anticipate fundamentals to continue to strengthen in occupancy, concessions continuing to burn off and true rent growth,” Bronson says. “That’s what we’ve seen gradually during the past two to three quarters and I expect for that trend to continue.”