Commercial real estate companies have good reason to put their faith in the multifamily sector with promising construction forecasts and a strong renter population to absorb new units.
A recent CoreLogic report measuring how likely a tenant is to violate their rental agreement found that there are a greater number of high-quality tenants as the economy makes gains. The national quarterly index during the first quarter was 104, a gain of two points when compared year-over-year. Anything over 100 points indicates a decreased lease default risk among applicants, as well as improvement in applicant credit quality, the San Diego Union-Tribune reported.
“As the economy continues to grow slowly, conditions appear cautiously optimistic for continued improvement in rental applicant qualifications in the year ahead,” said Jay Harris, the senior director of CoreLogic’s SafeRent in this quarter’s report. “During this relatively upbeat period, renter trends are pointing toward increased confidence among property owners and applicants.”
Among rental applicants, the ratio of Class-A rental applicants rose 7 percent from the same time last year reaching a total of 23 percent. This coincides with across-the-board increases in rental applicant incomes. For instance, the monthly income for an applicant for a luxury apartment was up 1.4 percent from the previous year, averaging $4,528 nationwide.
Alan Pentico, executive director of the San Diego County Apartment Association, said that local San Diego landlords have seen an influx of one-bedroom apartment applications – an increase that suggests the trend of doubling-up with parents or roommates could be dissolving.
Multifamily construction
Globe St. reported data from Marcus & Millichap that revealed that, despite stagnating construction activity in the first half of 2013, multifamily construction is expected to pick up later this year in the Orange Country, Calif., region. With vacancy rates below 5 percent throughout the county and average year-end effective rents surpassing $1,600 per month, the thousands of apartment units coming online in the next 6 months should fill quickly.
The slowdown in construction improved vacancy rates in submarkets. However, the 2,100 projected unit completions in 2013 – almost 1,000 units below the 2012 pace – should temper demand to healthy levels, putting slight upward pressure on vacancy rates. New construction late in the year will also cool rent growth, which saw 4.5 percent increase last year. In 2013, rent growth for the region is expected to increase by a still healthy 3.6 percent.
