An old story for recovering apartment markets, the clash of supply and demand and the related possibility of oversupply, is a story now emerging in the Hampton Roads area. It’s a drama, moreover, performed commonly across the nation at the current time. “Generational shifts of opinions about living quarters, the uncertainty of the housing market and stringent underwriting standards for apartment loans are a few reasons why the local apartment market is still a good bet,” Inside Business, The Hampton Roads Business Journal reported in September citing local owners and brokers. Moreover, adds the report, “more than 50% of individuals and families who plan to move in the next two years say they intend to rent.” In addition, as noted, job growth runs positive and any potential threats arising from BRAC, for the time being at any rate, have been eliminated. Construction, accordingly, is increasing as increasingly optimistic developers seize the reins, taking advantage of the favorable multi-faceted demand dynamics. Investors are optimistic as well. The sale last year by Great Atlantic Management Inc. of a large portfolio of local properties is regarded as “signaling confidence in the market,” the source reported in September 2012.
Still, by Reis’ count, net absorption, well in excess of same-year new supply in both 2010 and 2011, has slowed. The market-rate total through first half 2012 accompanied by no supply additions was 274 units (July followed with 11 more accompanied by 96 new units). Additional positive absorption is expected for the remainder of the year. Vacancy ended the second quarter at the low rate of 4.1%, down 10 basis points for the period, down 70 year-over-year. July’s insubstantial imbalance raised the rate by 10 points. Rent growth has been notably strong. At $906 and $886 per month, asking and effective averages for the second quarter were up 0.7% and 0.8% for the period and were up 1.6% and 1.8% year-to-date following increases of 2.2% and 2.4% in 2011. July followed with increases of 0.2% for each rate.
While the demand side appears secure for the time being, local sources express growing concern on the matter of new supply (see Special Real Estate Factors). Reis’ mid-September report on individual construction projects reports 1,740 market-rate apartments under construction, 853 of which are due on line in five projects by the end of the year (all in December). Of these the largest is the 252-unit Radius Apartments in Newport News. Second in size is the 224-unit Greenwich Village apartments in Virginia Beach. Construction started in April. In addition, an October start is scheduled for 216 units at the Hampton Roads Crossing development in Suffolk. An early 2014 completion is expected. A significant amount of current activity, meanwhile, has been undertaken by local developers. S.L. Nusbaum has 532 units underway, according to Inside Business. It and The Breeden Company, with 750 units underway, “continue to plan and construct hundreds of apartment units in every municipality in the region.” Nusbaum, in addition, has 360 units pegged for near-term starts.
The fuller effects of the increase in market-rate construction activity will not be felt until 2013. All the same, Reis, despite local concerns, currently expects demand to measure up. Vacancy in the neighborhood of 4.0% is expected for the foreseeable future. Gains of 3.3% and 4.1% in the mean asking and effective rents this year all told, should be followed by similarly strong growth rates in the period following.