Multifamily real estate market tightens

Apartment industry in recovery, according to survey
Inman News
Senior apartment executives report significant improvements in several apartment market indicators, including occupancy rates, sales volume and debt and equity availability, according to the National Multi Housing Council’s April 2005 Quarterly Survey of Apartment Market Conditions.

The survey’s four indexes measure changes in market conditions between January and April. For the third quarter in a row, and only the fourth time in the survey's six-year history, all four indexes showed improving conditions compared with three months earlier.

“All signs point to continued apartment market recovery,” said NMHC Chief Economist Mark Obrinsky. “After several years of flat rent growth and widespread use of concessions to fill apartments, a record 60 percent of respondents reported higher occupancy rates, rising rents, or both, in the markets with which they are familiar. The apartment recovery that began in a few markets is clearly spreading and gaining strength.”

Despite some anecdotal reports that the number of potential buyers may be edging down, actual sales transactions have not slowed down. The number of respondents noting higher sales volume than three months earlier outnumbered those observing lower sales volume by a 3-to-1 ratio (39 percent versus 13 percent).

The Market Tightness Index climbed to an all-time high of 78 in April. This was the seventh consecutive quarter in which the index has been above 50 (that is, the seventh consecutive quarter of improving demand, measured by lower vacancy rates, higher rents, or both). (A score above 50 means more respondents saw improving conditions than saw worsening conditions over the past three months.) According to the survey respondents, there are virtually no markets where conditions are worsening, and an increasingly large number of markets where demand is improving.

The Sales Volume Index was unchanged at 63, and represented the eighth consecutive quarter of increasing sales volume.

The Equity Financing Index was essentially unchanged at 63, the seventh straight quarter (and eleventh time in the past 12 quarters) that the index has surpassed 50. While 60 percent of respondents indicated conditions were unchanged, 27 percent indicated that conditions had improved, and a record low of only one percent reported that conditions had worsened.

The Debt Financing Index slipped a little from 56 in January to 54 in April. This is somewhat surprising since interest rates are a little lower than three months ago, but with the index above 50, which means more respondents saw improved borrowing conditions than saw worse conditions. Clearly, debt financing remains widely available.

The April 2005 quarterly survey was conducted from April 20-27. Eighty-three CEOs and other senior executives of apartment-related firms nationwide who serve on NMHC’s Board of Directors or Advisory Committee responded. The January 2005 quarterly survey was conducted Jan. 24-31, 2005; 113 responded. The April 2004 quarterly survey was conducted April 12-20, 2004; 72 responded.

Based in Washington, D.C., NMHC is a national association representing the interests
of the larger apartment firms in the country. NMHC's members are the principal officers of firms engaged in all aspects of the apartment industry, including owners, developers, managers and financiers. Nearly one-third of Americans rent their housing, and almost one in five Americans lives in an apartment.