Atlanta — The apartment market is the darling of commercial real estate and will continue to be so for the next few years, says Ryan Severino, senior economist of New York-based Reis. “It is spectacular.” His comments were made on Tuesday at the Interface Multifamily Southeast Conference in Atlanta. Severino, who was the keynote speaker, delivered a report on the economic climate and how it will impact the multifamily market in coming years.
Severino says the Southeast is on par with the rest of the nation, but the commercial real estate market is on a slow-growth trajectory. More specifically, the country is not creating enough jobs to drive down the unemployment rate, and he predicts it will be mid-decade before employment reaches previous peak levels.
That being said, the multifamily sector is continuing to show signs of strength. Vacancy rates are continuing to tighten and there will be limited supply growth until at least late 2012 or early 2013, which is causing an uptick in rent.
For example, Reis reports that in the third quarter of 2011, the apartment vacancy rate in Atlanta was 8.4 percent, down from 10.6 percent a year earlier. Additionally, the average effective rent in Atlanta in the third quarter rose to $767 per month, up 0.7 percent from the second quarter of this year.
Of the jobs that are being created, Severino says two main age groups are filling these positions: the 20- to 34-year-olds and people age 55 or older. Recent college graduates are moving into one-bedroom or studio apartments instead of into their parents’ houses. Additionally, there has been a trend of empty nesters over the age of 55 moving into apartments as well, he adds.
Transaction volume has been up, but still has not reached peak levels. The deals that are getting done are high-quality products in metro areas. Class A cap rates are at or below pre-recession levels, he says. As a result, investors are considering multifamily assets in secondary or tertiary markets, but only the cream of the crop properties.
— Savannah Duncan