Team Member Login follow usFacebookTwitter

Industry News

At Sunrise, we combine some
of the industry’s best minds
to guide us…and you…to a
more profitable future.

Sunrise Management Logo Sunrise Management Logo
Stacks of newspapers.

Sunrise Management Newsletter Signup

Enter your email to join our mailing list

Sunrise Management Newsletter Archive

Will Demand Keep Up with Apartment Supply?

As published in the Multi-Housing News Online (MHN Online)by Mike Ratliff
June 13, 2014

Houston—Apartments have held on as the darling of the commercial real estate industry since the recession, but are we on the verge of overbuilding? The answer seems to be no, as both developers and institutional capital are keeping a close eye on permits to ensure that absorption and occupancy remain high. But while the product type of choice remains the same for many builders and investors, the type of assets that are getting built and bought continues to evolve.

A panel of multifamily experts gathered on Wednesday at the National Association of Real Estate Editors (NAREE) Spring Conference to present on the current trends of the ever-evolving apartment industry.

This conference is a bit unique due to its journalist audience. Sensing that the crowd would be chomping at the bit for insight on the upcoming May construction starts data, Mark Obrinsky, chief economist & senior vice president for research at the National Multifamily Housing Council (NMHC), opened up urging restraint when reporting on the monthly stats. There is sample bias and a tendency for lumpy data, where starts of large projects can skew the numbers.

“The technical term for this behavior is actually ‘lumpy’,” Obrinsky says. “A single decision about when to start doesn’t affect one unit, it can impact 50, 150 or 200. If a handful of people make the same decision, while there is really no rhyme of reason, it can make it appear that there is a surge in one month, while the next month might be down.”

Obrinsky advises reporters and those in the industry to really watch moving averages instead of getting worked up on the monthly data. Moving averages for completions put us at a projected 230,000 units for 2014, and 250,000 units for 2015. The completions and starts are now roughly at the pre-recession levels, which brings up the question of overbuilding. It seems that for now, a combination of supply-demand characteristics and prudence will keep things in check.

“We had a decline in production through the recession, and are now moving towards equilibrium building apartments to meet the demand from ongoing population growth,” says Joseph Greenblatt, 2014 president of IREM and president & CEO of San Diego-headquartered Sunrise Management. “Another important component is that there is institutional memory. Lenders today are cautious when lending for new developments, rather than being irrationally exuberant for new lending as we saw during the last decade.”

Greenblatt adds that there is quiet a lot of money chasing existing apartments, and demand from a growing cohort of renters by choice will keep occupancies high and capital flowing.

Nonstop absorption has been a big factor in keeping new units full. While Obrinsky talked about being concerned a year ago over the high production levels in Seattle and Washington, D.C., absorption has been able to keep up with deliveries in both cases.

Houston is also on record pace, seeing over 8,000 new units absorbed this year through May, according to Martin Fein, president of Houston-based Martin Fein Interests Ltd. The city actually saw the demolition of 4,000 units of older B and C class product last year in order to make way for new luxury infill properties. Given the rent premiums, that strategy might become more commonplace in the future.

“Product with the walkability factor that is close to good transportation has significant rental premiums, in some cases up to 30 percent,” Fein says. His company recently acquired 10.2 acres near Houston’s Central Market, and opted to build a bit higher than normal in order to leave space for a one-acre park.

While Fein understands that green space is important to renters, he says pet-friendly spaces are the most important factor. Other important amenities are Wi-Fi, elaborate fitness centers and resort-style pools that provide relief from the Houston summers. On a national level, Fein is increasing his allocation of amenity space. While his projects used to devote 7,000 or 8,000 square feet for common areas, today that number is in the 10,000 to 12,000-square-foot range. In some cases he has even doubled the size of the pool.

Finally, Fein adds that sustainability is important to today’s generation of renters, though they don’t want to pay extra for it. According to Fein this shouldn’t lead you astray from green initiatives, as the end buyers—pension funds, institutional investors, life companies—believe they have a public duty to build portfolios of sustainable assets.

Return to Top

Press Releases | Industry News |