Navigating Apartment Markets' Supply-Demand Issues
Huntsville, Ala., is an interesting case, as are Columbus, Ohio; Bentonville, Ark.; and Knoxville, Tenn.
As apartment investors wade through the headlined, oversupplied markets, there is the chance they could capitalize on lesser-publicized markets, according to panelists at National Multifamily Housing Council’s Apartment Strategies Conference.
Speaking last week at the event in San Diego, Jay Parsons, SVP, Chief Economist, RealPage, said demand has not been a challenge.
“We’re bullish about more of it, especially in the Sun Belt and Mountain regions,” Parsons said.
“Consumer confidence is growing based on the University of Michigan Survey. There’s a real correlation between it and apartment demand. People are feeling better about things. A lot of the grocery store sticker shock is going away. Wages are rising more than apartment rents. It’s a unique cycle that we’re in.”
Parsons said lease-up rents are compressed. A recent survey of developers and contractors showed that about 80% of them are seeing delays in construction.
“It’s not because of supply chain or labor issues as it was before,” he said. “It’s about projects penciling out due to uncertainty of financing. These aren’t short-term delays – they are delaying projects significantly. I see us slogging through 2024 and then things improving in 2025.”
A John Burns report found that 80% of developers are developing less than last year and many are developing more than 20% less, Parsons said.
Huntsville is an apartment market that has been off the charts for supply and demand, Parsons said.
But still, rents have significantly compressed due to even more supply and demand — not necessarily for “off the charts” performance overall, he said.
Jeff Adler, Vice President, Yardi Matrix, said eventually there’s going to be another “up” cycle for the industry, but he sees 2024 and 2025 as difficult years for oversupplied markets.
Adler suggested looking for cities that can change their character.
“If you look back 10 years at markets such as Raleigh, Austin, and Nashville, they were not what they are now in terms of being destinations or homes to manufacturing and businesses such as technology hubs,” Adler said.
“A lot of times these [soon to be emerging, outperforming] markets are anchored to education and universities.
He said that places undergoing that kind of re-characterization now are Columbus, Ohio; Bentonville, Ark.; Knoxville, Tenn.; and Huntsville, Ala.