In an October 2012 report, New Mexico Business Weekly described the local apartment market as “cooling off.” The latest data provided by Reis on market-rate net absorption lend weight to the observation. Scanty at best, that total for the first half of 2012 (amid no new supply) was 28 units. Additional modest activity in July and August brought the eight-month year-to-date total to 92 units, well off the pace seen over the preceding couple of years. The poor job growth outline is a possible explanation. Another contributing factor could be improvement in the health of the single-family market. The debilitating weakness in that sector seen following the collapse of the market resulted, for a variety of well-publicized reasons, in a significant diversion of demand residential from the ownership sector to rentals (see Special Real Estate Factors for related commentary). While renting still remains attractive, lower home prices and the return of better conditions to the single-family sector may be affecting the demand for apartments originating in the single-family market.
A simultaneous marked slowdown in apartment development, in any case, has helped tightened the market. Reis put the second quarter vacancy rate at just 4.0%, a decline of 10 basis points for the period and a drop of 40 year-over-year. The positive absorption that followed in July-August shook 10 additional points from the rate. Rents, moving in tandem, have strengthened as well. At $735 and $705 per month, the second quarter asking and effective averages were up 0.8% and 1.0% for the quarter alone and were up 1.1% and 1.7% since year-end—following respective increases of 1.3% and 1.5% all told in 2011. Each rate grew by 0.4% over the July-August 2012 span.
Following development’s long drought, these favorable conditions have helped ignite a new cycle of construction—what the New Mexico Business Weekly described in April as development’s “flight to multifamily.” While the 2012 market-rate completion total will consist solely of the 260-unit Contata at the Trails in northwest Albuquerque, due on line in December, 882 market-rate apartments were under construction in three projects metro wide per mid-September. To these will soon be added the 574 units in four projects scheduled to break ground in January 2013 (others, without specified start dates, also are planned). The largest project currently underway is the 456-unit Diamond Mesa property at 2300 Diamond Mesa Trail in southwest Albuquerque. Reis cites an April 2014 completion date. Given the recent slowdown in demand, a question naturally arises respecting absorption of the new supply. While the pending supply totals are substantial, they are not overwhelming—and delivery of the new projects should be spread out over an extended period. The market’s current good health likely will continue.
Even with annual new supply numbers increasing, Reis expects vacancy to remain below 4.0% through 2013. Gains of 2.9% and 4.2% currently are projected for the mean asking and effective rents for the current year with higher growth rates expected thereafter.