WEST PALM BEACH, FL-Projected job growth and pent-up demand for rental housing are sparking a modest recovery in the Palm Beach County apartment market. So says Marcus & Millichap’s Fourth Quarter 2010 ApartmentResearch Market Update.
The firm reports a significant resurgence in demand for class A rentals through the first three quarters. Demand for class B and class C rentals was virtually flat in the period, however renewed hiring in trade sectors is a good start toward getting the lower-tier renter pool active again.
Investment activity still trails the strengthening in vacancy and rents, but low prices will stimulate greater activity in the months ahead. Marcus & Millichap also predicts possible changes in the tax treatment of capital gains could generate more deals by year end, and low interest rates and greater availability of acquisition financing also will encourage investors to act. Transaction velocity rose 40 percent in the past 12 months, based on a small number of transactions.
“We’ve seen a pick up in velocity as far as deal flow and sales,” Tal Frydman, vice president of Investments at Marcus & Millichap, tells GlobeSt.com. “There’s a mixture of deals getting done, but we’re seeing a lot of buyers picking up notes, making investments to rehab the properties, then selling them to end users.”
Marcus & Millichap predicts that the recent rally in vacancy and rents will bode well for future deals by providing property owners with a few quarters of stabilizing or improving NOIs, making prices easier to set. Moreover, additional investors may enter the market due to the recently enacted Distressed Condominium Relief Act, which shields bulk buyers from liability related to construction defects.
Developers only completed two multifamily properties in Palm Beach County in the 12 months ending in the third quarter. Those properties brought 711 units online. Only 223 units were permitted in the past 12 months, a 55% decline. Meanwhile, vacancy rates for class A units in the third quarter sat at 8.1% and rents rose .3% in the third quarter and are up 1.6% year to date.
“Multifamily sales will definitely be stronger going into 2011,” Frydman says. “The gap is closing between buyers and sellers in terms of the value expectations of properties. Sellers are realizing that the values of properties today will remain fairly similar for the next couple of years. The worst is behind us.”
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