Apartment markets around the nation owe much of their recent vigor to negative trends in single-family markets. It’s an oft-repeated refrain that high foreclosure rates and uncertainty about the future of values have driven elements of demand from the ownership markets to the rental option, both in homes for rent and apartments. Thus, multi-year high apartment net absorption totals have been a recent trend. While not precisely measured, the strength of this diverted demand likely runs in proportion to the severity of the single-family weakness. And few single-family markets around the nation have witnessed the severity of the decline seen in Las Vegas. Cutting the other way, notes Marcus & Millichap in its third quarter 2012 on the local market, “Competition from single-family homes employed as rentals remains a threat to apartment operations, and some investors are purchasing several homes instead of multifamily properties. A program by the agencies to sell single-family homes could increase this pressure in the coming years.”
In the meantime, the local apartment sector continues to show strength. While net absorption is down somewhat from the flood of demand unleashed in 2010, it remains formidable and construction completion totals to date have remained small and below same-term demand. Thus the 914 units of market-rate net absorption recorded by Reis for the first half of 2012 nearly tripled the 320 such units that completed construction during the period, all in the March delivery of South Boulevard Apartment Homes at 10200 Giles Road in southeast Las Vegas. The 152 additional units that delivered in July in Alliance Residential’s Broadstone Ravello property in North Las Vegas brought the year’s completion activity to an end. A total of 297 units of positive net absorption accompanied July’s portion of new supply.
Meanwhile, Reis reports 980 market-rate units in two projects under construction, as of late August, for delivery in 2013. The 660-unit El Dorado Apartments in North Las Vegas is scheduled for an August finish; the 320-unit Theory project, which broke ground in May, is expected to complete in southeast suburban Henderson in March. Other planned projects may move forward: Reis’ mid-year analysis calls for the completion of more than 1,500 market-rate apartments all told next year. In addition, 561 senior citizen housing units were under construction metro wide in four projects per report date for delivery by next May.
Vacancy ended the latest quarter at 7.0%, down 10 basis points for the period, down 130 year-over-year. July’s relative balance of demand and new supply left the rate unchanged. Two years of large losses were followed by modest positive rent growth in 2011. Growth has accelerated since: at $819 and $789 per month, asking and effective averages for the second quarter of 2012 were up 0.7% and 0.9% for the period and were up 1.2% and 1.9% year-to-date—following growth rates below 1.0% in 2011.
The 1,000 units-plus of net absorption projected for the second half of the year accompanied by no new supply would lower the vacancy rate to 6.2% by year-end. Gains of 2.9% and 3.9% currently are projected for the mean asking and effective rents for the year. While supply additions will increase in 2013, Reis expects demand to maintain the upper hand. Vacancy, amid favorable rent growth, should slip to about 5.4% by year-end; the rate should hold steady in 2014.