Steve Witten, Institutional Property Advisors, a division of Marcus & Millichap
In Fairfield and New Haven counties, growing rental housing demand will keep apartment vacancy tight throughout the year, despite a second consecutive year of elevated completions. Developers will complete 1,300 units this year, representing a minor drop from the number of apartments delivered last year. More than 700 of these new rentals will be in New Haven County. Another 1,500 rentals, mostly in Fairfield Country, were under construction in the first quarter of 2015, with deliveries slated for next year.
Key projects for completion include the 160-unit College & Crown in the city of New Haven. College & Crown is a modern luxury rental in a vibrant community, boasting galleries, shopping, dining and recreational activities, within walking distance to Yale’s main campus and the Yale School of Medicine.
New apartments will modernize apartment stock and mark an ongoing effort among developers to tap into unfulfilled demand for newer, amenity-laden rentals. In the first quarter of 2015, recently completed apartments in Fairfield and New Haven counties have been well absorbed.
An increase of rental housing inventory may also play a meaningful role in continued growth of the local economy by making it easier for local employers to recruit workers to the area. More jobs were created in the market during 2014 than in any year since 1998, and additional hiring is expected in the coming months. Job creation in fields that require degrees continues to be strong, and retail is emerging as an area of conceivable growth as new housing comes online. On the retail front, new store openings led to the hiring of 4,400 retail workers. Better operating conditions will support the addition of 12,500 jobs in the area this year. Approximately 1,400 workers were hired over the first three months of 2015, which includes 800 new hires in Fairfield County. Staffing in the combined counties grew 1.9 percent, or by 15,500 jobs since the first quarter of 2014, to exceed the gain of 7,900 positions in the preceding 12 months.
Solid performance of new properties will continue to affect strategies and choices in the investment market. Large properties built in the late 1990s or early 2000s that can be refreshed to take advantage of rising demand for well-appointed rental housing will command investors’ interest. A 323-unit complex in Stamford built in 2002 that changed hands this year illustrates the trend. Sales of outdated office buildings in urbanized areas for conversion to multifamily rentals will also remain a focus of development-oriented groups.
Overall, nearly one-third of sales in the local market comprise properties selling for more than $10 million, the domain of large private buyers and institutions. Still, sales of complexes priced from $1 million to $10 million doubled last year. Additional equity remains for deployment in this segment of the market, and lenders are intent on capturing a larger share of business. Accordingly, owners of small properties will more often consider dispositions in order to capitalize on keen investor demand and also to harvest equity for additional deals.
Vacancy will remain unchanged at 3.7 percent this year, and after a slight drop in the market-wide rents last year, a 2 percent increase to $1,661 per month will occur in 2015. The average market-wide rent of $1,636 per month in the first quarter was unchanged from the corresponding period in 2014. A 3.5 percent increase was recorded in New Haven County over the past year, and the average rent in recent-vintage complexes in Fairfield slipped 2.5 percent to $2,385 per month, reflecting the influence of new stock.
— By Steve Witten, Executive Director and Senior Vice President of Investments for Institutional Property Advisors, a division of Marcus & Millichap. This article originally appeared in the June/July 2015 issue of Northeast Real Estate Business magazine.