National Apartment Fundamentals Stay Strong

Although the economy is still struggling across the US and the recent rise in new housing has tapered off, the overall health of the apartment industry for 2014 is looking good in most areas of the country. In fact, over the past several years in certain parts of the US, apartments along with New Your, San Jose and San Francisco Property Management firms like ours in particular have been robust and have withstood the effects of the dragging economy.

This is because different areas of the country have different bases for their own economy and growth, which have dictated why certain locations have not done as well as the rest. In overall terms however, the National Apartment Index (NAI) has shown that the overall health of the apartment market remains strong.

The Leading Cities in the National Apartment Index

Technology, trade and energy have helped boost the top apartment markets in the country which include New York City and San Francisco as first and second respectively. Although the very tight apartment market in NYC has helped in some ways to fuel the demand, San Francisco has show long-term growth which has caused rental prices to steadily increase over the past several years.
While most cities in the top 15 shift positions regularly in terms of their status based on local economic growth, it does appear that NYC and San Francisco in particular have been at or near the top for quite some time, reflecting an unusual steadiness that has helped to bolster the overall marketplace for apartments.

It is true that in cities such as NYC, San Francisco and San Jose which currently ranks at #8 on the list have experienced price fatigue from the residents’ even though the overall health of the apartment marketplace shows little sign of falling away thanks to the combination of expensive housing, robust local economies and small vacancy rates. As of right now, there is no expected short term change that can be seen in these trends.

The Impact of the National Economy

Although the economy for the first quarter of 2014 showed a surprising slow-down, the GDP from the previous year was actually quite strong. In fact, the third quarter numbers for 2013 demonstrated a remarkable 4.1% growth which had not been seen in quite a while. At this point, the economy has essentially recovered to about 88% of the number of jobs held since before the recession.
As the economy continues to grow more jobs will be added, but in overall terms the recovery of the national economy will certainly have an impact on the apartment market as people from different parts of the country move into more economically successful areas and to take advantage of the gains being made. For 2014, the national economy has been predicted by economists to grow at a stronger rate, although the results from the first quarter are not promising.

Admittedly, the national economic trends are driven by forces that may not change for another few years barring an emergency or unexpected situation. With businesses continuing to hire at a relatively slow rate, most people across the country are not feeling the actual growth in the economy over the past few years. Whether this perception changes or there is a large boom or bust, the current trends indicate more of the same over the foreseeable future.

Overview of the National Apartment Market

For 2014, the new supply of apartments in the general market have pretty much been matched by the demand from new residents. With vacancy space at just under 5% for apartments, the recent surge in new housing has helped to pull away some potential apartment renters. However, the long term impact has yet to be fully felt as new housing builds have slowed in recent months.

In 2013, the number of new apartment units increased over 84% as compared to 2012 which had only 168,000. It is estimated that in 2014 the number will increase to 215,000 which is predicted to surpass the current demand and potentially increase vacancy up over 5%. Depending on the location of the new apartment units, this will tend to depress or at least restrain rental increases as more apartments become available.

The Outlook for Investors

For those who are considering investing in the apartment market, the outlook is still strong despite the number of new units being created. Depending on your location, rental prices will continue to grow and the overall trend still points to having plenty of people preferring apartments.

This is because the initial data researching the demand for apartments predicts that it will continue to increase over 2014 and match, if not exceed supply again depending on the location of the rental units. In developed urban areas such as NYC, San Francisco and San Jose for example, the investment opportunities are very strong thanks to a robust market where demand will still outpace supply. New York, San Jose and San Francisco Property Management firms are finding themselves out of inventory for potential renters. As an example, our firm, Property Force, Inc. picked up a good 3 bedroom apartment in the city of San Francisco and had over 50 parties at our initial open house. We received a number of applications and rented the place out for asking with just the one open house.

Projections are that demand will continue to meet and exceed supply in many cities. In fact, vacancy rates actually declined in 40 out of 63 markets which were mostly concentrated on the East and West Coasts while the Midwest did take the biggest hit with an overall increase in vacancy over the past year. Cities such as Jacksonville, Sacramento, Las Vegas and El Paso saw the biggest declines while major increases in vacancies took place in Oklahoma City, Cleveland, Indianapolis and the like.

If the trends hold steady, investors in many urban areas can expect a healthy return based on the continued rise in demand that outpaces supply over the next year or two. This is the time to get into the apartment market in cities that have managed to maintain low vacancy rates and consistent rental increases.

Overall, the trend in the apartment market is for demand to at least match supply in most cities, something that will continue into the foreseeable future until there is an upheaval in the national economy. In other words, unless things get significantly better or worse, the current trend of rather steady growth will continue to place a high demand on apartment space in many major cities across the US, particularly in the coastal areas.