Five years of analyses show rents will continue to rise until 2003 when an overall economic slowdown is predicted to occur, based on second-quarter findings that compare annual market rental growth to actual rents. The firm, headed by Murray Ross and Ron Johnsey, counts among its 50-plus client roster REITs, investment firms and property management companies. The Axiometrics model has been "warmly received ... from the guys who understand the math," Ross told GlobeSt.com.
The markets with the highest correlation coefficient between actual rental rate growth and what's predicted for the next two years are Dallas, Houston, Orlando, Phoenix, Portland and San Jose. Apartment REITs with the highest correlation between actual changes and predicted growth are AvalonBay Communities, BRE Properties, Equity Residential, Essex Property Trust, Summit Properties and United Dominion Realty, according to Axiometrics.
Ross says Axiometrics has developed an accurate assessment tool for those who must decide whether to aggressively hike rents or hold the line. The model's accuracy has been tested by statistics gleaned from second quarter 1995 through this year's second quarter and is driven by computations of job growth at market level and residential permitting, explains Ross.
He says the most shocking finding to date centers on what appears to be an almost unavoidable dramatic economic slowdown for the now-booming California market. The San Jose market, which skyrocketed two years ago, now has a weighted average rent of $1,600 per month for an 888-sf unit. San Francisco currently has a weighted average monthly rent of $1,727 for an 800-sf apartment. There's no relief in sight, according to preliminary third-quarter findings now being compiled. Rents, says Ross, will be "dramatically higher in the Bay area" as the year progresses. "At some point, people are going to reach the gag point and go elsewhere," he says, adding a word of caution to rent controllers that the market could bottom out.
Ross is predicting - like many others - an inevitable economic slowdown for the entire country, using a data analysis that doesn't point fingers at the cause. Houston and Dallas will continue at its present pace for at least 18 months when a falloff is predicted to start for jobs and rental rate growths. It boils down to good news for employed consumers and a cautionary note for apartment developers, managers and investors, says Ross. The current data suggests conditions conceivably could return to its depressed state of the early 1990s when Los Angeles lost 200,000 jobs over a two-year period.
On the bright side, preliminary third-quarter findings may change the doomsday prediction for 2003. "Assuming the good times keep rolling, it could push the slowdown farther out," he says. "But, the euphoria (prevalent in today's rental market) needs to be tempered. Things can get shaken and the apple cart can get upset."
Axiometrics is a primary provider of apartment data for GMAC. The Dallas company maintains a database of 8,000 projects, representing 2.5 million rental units. The company also counts among its clients J.P. Morgan, Morgan Stanley Partnership and Fidelity.
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