We are very excited to announce that Patrick L. Reynolds, CCIM has joined NAI Eagle as a Senior-Vice President – Managing Director Hampton Roads. This will allow Patrick to continue to provide superior service to clients, customers, tenants, and landlords on an even larger scale as part of the NAI Global platform. Additional information provided below:
We will have some exciting news coming in 2016, and until then everyone at Ashby Real Estate Group wishes you a Merry Christmas and a Happy New Year.
Very interesting article by Bendix Anderson , from National Real Estate Investor regarding Class-B, and Suburban Class-A apartment properties.
“Class-A apartments in core neighborhoods may no longer be the best investment in today’s market. Vacancy rates are rising for to the most expensive apartment communities in urban neighborhoods, research shows.
“The urban class-A market is seeing some pressure. It’s not a crisis by any means, but it’s now an underperforming segment of the market,” says Jay Parsons, an expert with MPF Research, a division of RealPage, Inc., an apartment market intelligence firm. “We expect that to remain the case through 2016 and likely into 2017.”
The pressure is due to the fact that developers are building so many new luxury apartments in urban areas, especially in downtown districts. Vacancy rates are lower and rent growth is steady for apartment communities that don’t have to compete so hard to attract renters—including class-A apartment communities in suburban areas, where there isn’t so much new construction, and class-B apartment communities everywhere.
“Class-A vacancy rates will continue to rise, while class-B vacancy should decline as few developers build class-B buildings,” says Barbara Byrne Denham, economist with New York City-based research firm Reis Inc. “Rents should continue to rise, although the rate of growth for class-A rents will be lower than it has been. The rate of growth for class-B rents should stay the same.”
Vacancy rates fall for class-B apartments
Usually, class-A communities have significantly fewer vacant apartments than class-B communities. Over the last dozen years, from 2003 to present, the class-A apartment vacancy rate averaged 5.2 percent. That’s 40 basis points lower than the vacancy rate for class-B apartments. But that difference has vanished as class-B apartments catch up to class-A—both had an average vacancy rate of 4.9 percent over the last two years, according to data firm Axiometrics Inc.
“Class-B has enjoyed the benefit of job growth (demand), without the drag of new supply,” says Jay Denton, senior vice president with Axiometrics. “Class-B properties are priced at the midpoint of the market, and more people can afford them.”
Other data firms show class-B communities posting better fundamentals than class-A properties, with an average class-B vacancy rate that fell from a high of 8.1 percent in 2010 to just 3.2 percent in the second quarter of 2015, according to Reis. That’s far below the average vacancy rate of 5.7 percent for class-A apartments in the second quarter.
However, rents have grown slowly at class-B apartments over the last few years, at a rate of approximately 2 percent a year, compared to more than 3 percent for class-A apartments.
“Class-B and class-C landlords are unable to increase rents significantly for this large segment of the population, who do not have the income support to pay higher rents, while landlords of class-A units clearly can raise rents,” says Reis’ Denham.
Vacancies rise for downtown class-A apartments
In urban downtowns, where developers have built many new apartment buildings, the vacancy rate for class-A properties is sometimes significantly higher than at class-B buildings.
For example, 5.5 percent of the class-A apartments are vacant in the urban core of Austin, Texas. That’s more than twice the 2.4 percent vacancy rate for class-B properties, according to Axiometrics. Class-A properties also suffer from higher average vacancy rates compared to class-B building in the urban cores of Denver, Seattle and Houston.
In Dallas, where the urban, core sub-market has absorbed a great deal of new apartments, the vacancy rate is the same for both class-A and class-B properties at 4.6 percent. “We have seen some positive momentum in terms of rent growth, which suggests the urban core has ‘recovered’ from the influx of new supply,” says Sophie Zatterstrom Gore, analytics workflow manager for Axiometrics.
In suburban areas, class-A properties are performing much better.
“Suburban class-A is performing phenomenally well and we are bullish on the outlook too,” says MPF’s Parsons.
That’s because relatively few developers are building in the suburbs, where resistance to development and restrictive zoning laws keep many builders away. The inventory of apartments has grown more quickly in central business districts than in the suburbs since 2007.
“The gap has widened substantially in recent years… and will remain unusually wide through the next few years at least,” says Parsons.”
Ashby Real Estate Group is pleased the announce the expansion of our multi-family management portfolio with the addition of Sunstone Apartments. An active 55+ community in the Western Branch section of Chesapeake, Virginia will be an exciting addition to our portfolio and we look forward to getting to know our new neighbors. We have just launch the communities new website and will be adding updated content soon, take a look SunstoneApartments.com
The commerical real estate industry is trying to set standards for measuring commercial real estate. Interesting article on the first steps towards a standardized system.
Whether you are a first time property owner or a experienced investor this article has some great tips on helping you with your NOI.
Cap Rates are used almost daily by all commercial real estate professionals. Whether it be calculating a listing price, and offering price, or looking for an investment. The link below is a very interesting article on Cap Rate Variations.
Old Dominion Center for Real Estate and Economic Development held their annual Real Estate Market Review this month at Old Dominion University. The links below will take you to the 2015 reports and presentations covered in this year’s event. This is a great event the center puts on every year and if you have an opportunity you should attend next year. Enjoy the reports and if you should have any additional questions please give us a call at Ashby Real Estate Group and we are happy to help.