More apartments are being rented in Southern Connecticut, which is benefiting multifamily properties in the Fairfield County/New Haven region in several important ways.
For New Haven, this means the return of rent growth. In Fairfield County, the added demand for rentals continues to support new development. An improved outlook for both markets has also positively influenced investment activity.
In 2017, multifamily operators in the New Haven metropolitan area had one of their best years since the recession, thanks to improvements on multiple fronts. Appeal for apartments has generated the second-highest net absorption level so far this decade. Demand increased in the city itself, where Yale University and Yale New Haven Hospital offer numerous employment opportunities, as well as in the surrounding greater New Haven suburbs.
Absorption of rental units surpassed that of deliveries by a multiple of three, facilitating a major drop in vacancy. The metro’s overall vacancy rate at the end of the first quarter was 4.7 percent, 270 basis points below where it was just two years ago. Equally important, healthier demand has also aided rent values. Monthly effective rates started to rise in 2017 after retreating in 2015 and 2016, with rent growth nearing 6 percent year over year in March 2018, outperforming the country as a whole. Benefits from robust leasing activity are also happening in other Southern Connecticut markets.
Victor Nolletti
Senior Managing
Director,
IPA-Northeast/Marcus &
Millichap
In Fairfield County, the level of rental demand exceeds that of New Haven. From 2013 to 2017, net absorp- tion averaged 1,300 units a year, a level New Haven only surpassed twice in the same time frame. Despite the higher number of leases, rent growth in Fairfield County has not improved like it has in New Haven. Renters are leasing new apartments and keeping up with construction activity.
Developers delivered 7,500 units over the past five years, a 15 percent increase in total supply, contributing to a 10-basis-point uptick in the mar- ket’s vacancy rate, to 5.4 percent. The arrival of so much new inventory in such a short time span would likely have raised vacancy further had rent growth not diminished.
Annual net-effective rent growth remains low due to recurring concessions and new deliveries. In many ways the core Stamford- Norwalk metro echoes the Greater New York metro. The underlying foundation of strong demand remains as first-quarter apartment absorption surpassed a record level of new construction. Such positive performance is a favorable sign for where the market is going this year.
Investment activity remains brisk in New Haven and Fairfield County (the Greater Hartford region remains extremely active as well). In the 12-month period that ended in March, New Haven led the state in sales ve- locity while Fairfield County had the largest volume of transactions by dol- lar amount.
The unique characteristics of each area play a large role in these dis- tinctions. Buyers looking in Fairfield County have a greater number of op- portunities among the large-scale lux- ury space, given the ample amount of new development in the area.
Examples of this are the 392-unit NV@ The Park, which recently opened along the Stamford waterfront and the 209-unit Vela on the Park in the heart of downtown. Conversely, the lack of construction in New Haven has lessened the competitive pressure among smaller apartment complexes, adding appeal to older stock with value-add potential.
Numerous deals for such assets were completed over the past year. The uptick in buying activity is also contributing to price growth. The region’s average sales price per unit improved 6.5 percent between the first quarters of 2017 and 2018, far surpassing prerecession valuations.