The most apparent upturn in the commercial markets today is the recovery of the commercial multi-family market. Apartments are popular again, now that home ownership is out of reach for so many, due to stringent mortgage guidelines.
According to a study by Reis, Inc., national apartment vacancies fell by half a percent in the fourth quarter of 2010, from 7.1 percent to 6.6 percent, Close to 58,000 new units were filled. Despite the fact that the fourth quarter is usually a weak period for the apartment market, given that most families decide to move and lease new apartments during the second and third quarters when school is out.
The good news is that it appears to be a real trend; this latest drop in the vacancy rate follows one of the sharpest drops on record during the third quarter, on top of the fact that the fourth quarter is usually prone to seasonal weakness.
As a result of this new demand, rents are UP. Asking and effective rents each grew by 0.5 percent. It’s also encouraging that effective rent kept pace with asking rent, which means that landlords are having to make fewer concessions. Experts at Reis Inc. cite an improving economy and improving sentiment about the labor market. This latest data also appears to prove that the apartment sector bottomed in the fourth quarter of 2009. It is now leading the recovery in commercial real estate, as the office and retail sectors don’t get the boost from the change in housing demand.
In some areas, Multi-family still is prone to in loan defaults. Despite a loosening in commercial lending recently and attempts to resolve troubled loans, the delinquency numbers continue to go up, which means more properties will be available for distressed prices.
So, will the recovery in the apartment sector help to bring down these loan delinquencies?
YES! Deals beget deals. Banks want well healed investors for loans, and the investors are out there looking. Many still want to steal, fix, and flip. But, serious investors with a 3-5 year time horizon / hold period can expect annual increases.
I am asked “ Is the bottom in, Tom?” My answer, “ A bottom is in. Is it THE bottom? I hope so.” Its been 4 years of falling. At the very least, a healthy bounce will make us all better off.
Tom Duffy, Commercial Services Manager