As in the apartment markets in other old industrial cities of the Northeast, the economic vitality needed for a strong demand profile was exhausted by the demise of Buffalo’s domestic heavy industry sectors. With population growth running negative and suburban expansion virtually non-existent, developers have little incentive to risk new projects. By Reis’ count, only 215 market-rate apartments completed construction metro wide over the entire four-year span 2008-2011. Further, the robust demand trend seen in apartment markets throughout the nation beginning in 2010 has been muted in the Buffalo area. Nonetheless, demand claims the advantage over same-term supply: last year’s market-rate completion total of 75 units was accompanied by net absorption at 248. Thus, an already tight market continued to tighten.
Accordingly, construction activity, albeit in modest proportion, has increased in the 21,040-unit Buffalo apartment market. A total of 194 market-rate apartments in two projects completed construction during the first half of 2012, accompanied by a virtually equivalent net absorption total—197 units. The larger of the two, the 115-unit Lafayette Apartments, a $46 million conversion of the old Lafayette Hotel, delivered in April in South Central Buffalo. The 79-unit Remington Lofts delivered in north suburban North Tonawonda in February. According to Reis’ September report on individual construction projects, three with a combined total of 277 units are under construction. The first to deliver, due on line this December, will be the 100-unit second phase of Centre Court in Niagara Falls. Two small projects, each with 42 units, are scheduled to break ground during the fourth quarter. While suburban development is minimal, developers are exploring opportunities for urban redevelopment projects. The above Lafayette Hotel conversion stands as an example. Others likely are pending (see Special Real Estate Factors.)
While a boom in development is not foreseen, low and declining vacancy, a product of a low profile over many years in concert with recent increases in demand, is the current trend. Reis put the second quarter rate at just 3.5%, up 10 basis points from the quarter before, down 60 year-over-year. A total of 17 units of positive net absorption over the July-August period shook 10 additional basis points from the rate. Rent growth, also modest in proportion, has been positive overall since 2010—and now is accelerating. At $757 and $730 per month, the second quarter asking and effective average rates were up 1.5% and 2.0% since year-end in the wake of gains on the order of 1.3% and 1.5% for all of 2011. July-August followed with increases of 0.6% for the asking rent and 0.5% for the effective rent.
Continued tightening: Reis expects the vacancy rate to slip to 3.2% by year-end. Strong rent growth, gains of 3.3% and 3.9% for the asking and effective averages, is forecast for the year. A moderate development pace, responsive to demand, is expected for the period ahead.