Millennials Lead the Way in New Mexico’s Multifamily Market
Multifamily housing is coming of age in New Mexico, and the Millennial generation is spurring the growth. The old adage of “location, location, location” is ever present as the placement of a property in relation to cultural, educational, entertainment and natural amenities becomes a major factor in the value of the property. The ability to walk and bike to social amenities like restaurants, theaters and schools is, and will continue to be, very high on the list of importance for members of this generation in New Mexico. There is not only a distinguishable difference in occupancy rates for units scoring high on Millennial’s wish lists, but the income for these units is between 20 percent and 24 percent higher than those with lower scores.
While newly constructed and refurbished multi-housing units often appeal to Millennials, all of New Mexico is experiencing high occupancy rates throughout the multifamily market. This push on availability is fueling an environment that will continue to encourage increasing rents and new construction. Though the sale of multifamily properties was deeply affected by the recession, a market shift in 2013 has allowed the multifamily market to regain its footing with a two- to three-times increase in sales during 2014. Cap rates for commercial properties in our market are between 8 percent and 9 percent, while cap rates for multifamily properties are trending below 7 percent. Low vacancy rates and availability of product are the prime factors in this cap rate compression.
New multifamily construction is trending heavily to two-bedroom units. About 55 percent of the new units being built on average are two-bedroom units, while 20 percent are studios/one-bedrooms and 25 percent are three-bedroom units. Newly constructed units of all sizes are garnering higher rents. Asking rents at new complexes hover between $1.30 and $1.60 per square foot, according to a recent local survey.
The vast majority of existing multifamily property is 20 to 40 years old. Rents per square foot for this existing inventory of two- and three-bedroom units are comparable at about $0.80 to $1.20 per square foot. While the actual monthly rent is lower for studio and one-bedroom units, the rate per square foot tends to be 20 percent to 40 percent higher.
As with any region, continued growth is dependent on job stability and job creation. New Mexico is poised for both. As New Mexico follows the nation out of the recession, we find ourselves looking like the belle of the ball to out-of-state investors searching for a solid investment at a good price.
By Debbie Harms, NAI Maestas & Ward Commercial Real Estate. This article appeared in the May 2015 edition of Western Real Estate Business magazine.