Sector Set for Recovery

The worst is over for the U.S. apartment market, according to Marcus and Millichap’s 2010 National Apartment Report. A survey of 44 nationwide markets based on forecast supply and demand conditions, the report found that a drop in construction has set the stage for a recovery this year.

February 8, 2010
By Allison Landa, News Editor

Courtesy Flickr Creative Commons user cliff1066tm

The worst is over for the U.S. apartment market, according to Marcus and Millichap’s 2010 National Apartment Report.

A survey of 44 nationwide markets based on forecast supply and demand conditions, the report found that a drop in construction has set the stage for a recovery this year. Moreover, it found that vacancy will decrease to 7.8 percent, although asking rents are expected to decrease as well, falling 1.7 percent.

Marcus and Millichap president and CEO Harvey Green and managing director of research services Hessam Nadji predicted a broadening of acquisitions players as well as better times to come.

“This year, more foreign investors, REITs and institutions will join private investors, who dominated acquisitions last year,” they wrote. “Expectations for near-term weakness will be overshadowed by increased visibility on fundamentals, more reasonable cap rates and prospects for above-trend rent growth in the years to come.”

Driven by continuing government spending, Washington, D.C. was the top-rated market for the second year in a row. San Diego rose four places to number two, banked on expectations for an uptick in employment and household growth and resultant low vacancy and slightly rising rents.

“With property performance expected to be steady throughout much of the metro, investment activity will likely pick up this year,” regional manager of Marcus and Millichap’s San Diego office Kent Williams said in a statement.

Though many Midwestern markets continued to look good this year, they are expected to lag behind overall economic recovery. At number 20, Chicago fell nine spots from last year, and Cincinnati, Columbus, and Kansas City all fell eight spots from the previous year.

Conversely, markets hard-hit by the housing bubble and recession have begun to climb. At position number 22, Seattle rose three spots, while at number 25, Miami was also up three spots. Phoenix, one of the most battered markets in the recession, came in at number 34, up seven spots from last year.

“Softening operating conditions contributed to stalled transaction activity through much of 2009, as buyers and lenders were unsure how far property fundamentals and NOIs would slip,” Green and Nadji wrote. “With the economy entering a modest recovery and most performance measurements expected to stabilize in 2010, investors have more confidence in their forecasts and underwriting.”