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Brent Wittenberg, MHA Perspective 2009
- 1. MHA Perspective 2009 Twin Cities Apartment Market Update 2009 1 st Qtr. Brent Wittenberg Vice President GVA Marquette Advisors 333 S. 7 th St. , Suite 300 Minneapolis, MN 55402 612-392-2344 [email_address] Marquette Advisors
- 6. Vacancy by Unit Type Marquette Advisors
- 8. Avg. Rent by Unit Type Marquette Advisors
- 10. Performance by Submarket Marquette Advisors
- 19. Top 10 List: Why its good to be in real estate… Marquette Advisors
Editor's Notes
- 2008: Positive absorption through 9 mos., offset by 4 th Qtr declines Vacancy up, but remained below 5.0% at year end Modest rent growth Twin Cities in top 1/3 of U.S. markets due to stability 2009: Weakening demand fundamentals to date Major job losses beginning late 2008, continuing to date Renter traffic down Rental incentives/concessions more prominent
- Things could be worse…..and in fact they are in most U.S. markets Twin Cities showed modest rent growth in 2008. But continues to outperform most U.S. markets in terms of occupancy. Only San Diego and NYC had lower vacancy rates at 2008 year-end. Many national apartment reports cite less volatility in Twin Cities economy. That has changed unfortunately and we will discuss.
- Vacancy 2004-2007: Modest supply increases paired with some job growth led to declining vacancy 2008: Demand fundamentals deteriorating, supply increasing, lead to rising vacancy, but still sub-5.0% Rents Modest rent growth from 2005 to late 2008. Now more downward pressure on rents due to low demand.
- 2008 supply increases exceeded demand Leads to rising physical vacancy rate, but still sub-5.0%
- At 4.9%, Twin Cities physical vacancy up 100 basis over 1 year ago Vacancy by unit type fairly consistent across unit types, exception of 1+Den and 2+Den units. Recently, market showing preference for standard 2Br and 3Br units compared to these unit types.
- Note rise in vacancy at nearly all price points, even at low end of the spectrum…..this is different. Seeing exodus of renters due to job losses, downward pressure on household incomes. - Renters doubling up - Moving in with relative - Leaving TCs Tough to back-fill those units given deteriorating demand fundamentals (no growth)
- Rising vacancy creating downward pressure on rents, especially among larger unit types. Somewhat attributable to price sensitivity, but also competition from “shadow rentals” (investor owned houses, townhomes, condos) Concessions again becoming more common across the market. Concessions spotty and vary by unit type, but owners/managers concerned by lack of traffic in prime leasing season.
- Graph shows comparison among Twin Cities submarkets in terms of rents and vacancy Generally the core continues to outperform our suburban markets, especially B and C product in the cities of Mpls and St. Paul Some excess vacancy within Downtown Mpls Class A as a result of the economy and also recent supply increases in both downtown & uptown Mpls
- It still is about the jobs…..at least in the short term, it is job growth (or at least a return to normalcy) that will result in immediate improvement Interesting to compare this recession with the last one 2001/2002 recession: About 40,000 jobs lost over 2 year span. More recent job losses have been more signifiant. -40,000 jobs in 2008. -70,000 jobs 2008 and 2009 ytd. Health care and gov’t only growing sectors…..but gov’t budgets being cut so growth there likely not sustainable National and regional economists predicting continued declines
- Interesting to compare this recession with the last one 2001/2002: job losses totaled about 40,000 vs. 70,000 in current recession (mostly over the past 7 months) 2001/2002 recession saw more significant negative absorption as more renters were lost to homeownership at the same time. For much of 2008, job losses triggered loss of renters, offset somewhat by former homeowners entering rental market That too is changing somewhat more recently.