Market fundamentals are strong. While construction has continued, it has remained below the levels of recent demand. Continuing the trend in place since 2010, market-rate net absorption through the first half of 2012, at 314 units, ran well ahead of the new supply—the 132 belonging to the second phase of The Oaks at Lakeview complex in the South Omaha submarket, delivered in June. A lack of new deliveries in July-August was accompanied by net absorption at 66 units. Two new projects with a combined total of 174 have delivered since: the largest was the 132-unit Montclair Village Apartments in southwest Omaha, which finished in October.
Construction remains active in the 39,946-unit apartment market. Reis’ October 8 report on individual projects cites five large developments with a combined total of 1,432 market-rate apartments under way. Of these, 550 units in two are given 2013 completion dates. In addition, a start this November is anticipated for the 216-unit Elkhorn Apartments in suburban Elkhorn (not included within current submarket boundaries). The latest project to start and the largest presently under way, meanwhile, was the 350-unit second phase of Tuscany Place in Papillion (Sarpy County), which broke ground in August for a December 2013 finish. According to an August report by locally-based World Group Commercial Real Estate, tax increment financing has been approved by the city of Omaha for The District, “an urban mixed-use project,” a redevelopment of 1940s’ vintage Lerner Building at 16th and Harney Streets downtown. Plans include 40 “state-of-the-art apartments.”
Like demand, occupancy seems strong enough to accommodate the new supply. Reis put the second quarter vacancy rate at just 3.8%, a decline of 10 basis points for the period, a loss of 90 year-over-year. July-August absorption subtracted 20 additional points. The slowdown in rent growth seen last year has been followed by marked acceleration in 2012. At $726 and $700 per month, asking and effective averages for the second quarter were up 1.2% and 1.3% for the period and were up 2.3% each since year-end following gains of 1.1% and 1.3% all told in 2011. Additional increases of 0.3% had followed for both rents by the end of August.
Reis expects vacancy to end the year at 3.4% as demand maintains its margins over same-term new supply. Growth rates of 4.0% and 4.7%, high by any standard, currently are forecast for the mean asking and effective rents for the year. While supply may move slightly ahead of demand in 2013, vacancy is low enough to manage the excess. The market should remain tight; rent growth at about 3.5% is expected for 2013.