“2009 was a horrible year, and the industry was still expecting the worst when suddenly the numbers just kept getting better every month across 2010, ending the year with effective rent growth of about 4.4 percent and vacancy at 6.5 percent nationally,” attests Ron Johnsey, president and founder of Dallas-based apartment research and consulting firm Axiometrics. “So you have this anomaly where we had great rent performance in 2010, but you look at the job growth, and it’s just not there. Let’s say job growth ends up at 0.7 percent. That is too anemic to explain the recovery we saw in multifamily last year. So you have to look at other things.”
Nowhere to Run
So why, despite a still-flagging economy, have apartments performed so well over the past year? The answer is one of a confluence of market factors that not only explain 2010 improvements to rent fundamentals but also—barring any unforeseen cosmic interventions in the macroeconomy—position multifamily operators to aggressively price rental units over the next 12 months, even if that means pricing existing residents out of their apartments.
Hot Markets
The top 10 multifamily markets of 2011 have a foundation of strong fundamentals.
So what will be the best apartment markets this year? Like most things, it depends on whom you ask. For the investment-minded executive, Encino, Calif.–based multifamily brokerage and advisory firm Marcus & Millichap has pegged New York City to outpace Washington, D.C., when considering employment growth, vacancy rates, and asking rents together.
“The coastal markets that took a hard hit on the way down are leading the recovery on the way back, and that includes New York City, D.C., Boston, the San Francisco Bay area, Seattle, and San Diego,” says Marcus & Millichap managing director of research and advisory services Hessam Nadji.
When it comes to pure rental revenue, M/PF Research’s Greg Willett pegs San Jose, Calif., as the nation’s top growth contender in 2011, with revenues poised for a 10.2 percent surge from a forecasted rent increase of 9.6 percent against an occupancy level that is tightening 0.6 percentage points to 97.1 percent.
“Markets like San Jose; Washington, D.C.; and even Baltimore are obviously already doing well,” Willett says. “The markets that are a little more interesting are in the middle of the pack but are ready to charge ahead in a big way: markets like Austin, Raleigh, and Fort Lauderdale are the ones that are surging at a much stronger rate.”
“In 2010, I think virtually everyone underestimated the rent growth and the recovery that was going to happen,” says Keith Oden, president of Houston-based apartment REIT Camden Property Trust. “We raised our guidance twice during the year, and other public companies did likewise, and that was all attributable to NOI growth.”
