Slow recovery in Las Vegas' apartment sector.
Economic conditions in Clark County and Las Vegas continue to improve with evidence of a slow and steady recovery finally emerging. Analysts from the UNLV Center for Business and Economic Research’s late summer survey noted respondents remained optimistic about general economic conditions in southern Nevada, with 82 percent expecting to see no change or improvement. Their Southern Nevada Business Confidence Index rose to its highest level in more than four years during the summer, echoing this positive sentiment.
A couple of indicators highlight the emergence of a more favorable environment, with retail sales improving, McCarran Airport traffic on the rise and the gaming “take” on the rebound. Median existing home sale prices have jumped more than $12,000 compared to the same period a year ago. Furthermore, the labor market in Clark County has stabilized with more than 6,000 jobs added to non-farm payrolls since the spring. The overall county population has also increased to its highest level in five years, according to US Census estimates.
In the multifamily market, the past two indicators carry the most weight for the region’s apartment market. A healthy apartment market requires significant population densities with a positive trend. This needs to be supported by a healthy labor market. A market needs a strong economy that attracts people, which in turn stimulates apartment demand. This then, in turn, reduces vacancies that place upward pressure on achievable asking rents.
For context, in 2007, rents in the valley were growing at 3 percent per year. By 2009, that number had changed to a negative 4 percent per year. On top of that, concessions of one month free per year drove the overall gross income down 16 percent to 20 percent. Owners suddenly couldn’t meet their debt obligations and values dropped below the debt itself.
But since then:
Still, even with a recovery beginning (and projected to continue), Las Vegas is well below averages for similar properties both nationally and in the West.
Developers put on the brakes as the soft rental rate environment made new development less financially viable. Newly completed apartment deliveries were the lowest on record in 2012 with only 472 units delivered into the inventory. Next year should bring a notable uptick, with 1,787 market rate apartments scheduled for completion. With the oversupply decreasing and new construction at very low levels, we would anticipate a continued improvement in Las Vegas rents.
There is an interesting change in renter demographics going on now, however, as the “Y” generation’s approach to housing is notably different from prior generations. No longer is home ownership the overwhelming goal. Some of what is driving this shift is related to the economy, but increasingly, some is an actual preference shift. Generation Y places a premium on mobility, as they don’t see themselves living in one place for an extended period of time. They have jobs that likely demand mobility. They have disposable income but choose living in high-end, highly amenitized apartments.
Accordingly, newly constructed apartments have:
- Highly upgraded interiors
- Large units (especially master bedrooms)
- Direct access garages
- Larger clubhouses with game rooms, yoga studios, etc.
- Large outdoor social areas
In Las Vegas, Ovation Property Management, along with a few others, started this trend. Today it is continued by builders like the Calida Group. Their rents/square footages and actual rents are higher, thus allowing easier lender underwriting.
— Douglas S. Schuster, senior managing director, Newmark Grubb Knight Frank