I am Charles Dalton with Real Data We track apartment market conditions throughout the Southeast. And Mandy from the Apartment Guide asked me talk about where the market is now, what is impacting the market and what that means for the future
Everything I am going to tell you is based on our market reports which are published semi-annually with the latest one coming out in September. Sales pitch Everyone’s boss or regional manager or owner is going to ask you what is going on in the market This will tell you everything you want to know and make you look like a genius So add this to your budget for next year Real estate is cyclical and goes through booms and busts With the most recent boom and subsequent bust have been more severe. I just want to show you a couple a graphs that illustrate what was going on, first is employment
Job growth is the primary driver creating demand for all housing types not just apartments. If you are creating new jobs, you are drawing people to the area and away from areas were there are not good job prospects. If you look at this graph, Charleston experienced strong job growth over the ten year period from 1997-2007 that averaged 3% growth per year Charleston created approximately 85,000 new jobs during this time period that corresponds to the areas stronger period of demand for apartments.
The employment growth helped fuel boom in housing which was further fueled by low mortgage rates and investor speculation in ever rising home prices. This graph shows residential building permits from 1991 to 2006. Green represents Single Family and Blue is Multifamily As you can see, Charleston was cruising along with approximately 3,000 new units annually then in 1998 that number nearly doubled and then nearly doubled again in 2005 with a peak of almost 11,000 new housing permits. So how does this impact the apartment rental market?
There was a build up of excess housing, primarily single family and for sale condominiums. No one really worried about the excess because the economy was booming and home prices were rising. However, you did have a shift toward more people favoring home ownership versus renting. And then as this excess housing supply grew the rental ‘shadow market’ developed. And this impacted the demand for apartments and eventually occupancy rates and rents
This graph shows what we would expect demand for apartments to be based on employment growth – that is the blue line And what demand actually was – the red line As you can see during the housing boom, the actual demand for apartments red line was well below where we would have expected.
Housing Bubble Bursts/ Recession (2008-2010?) Home prices fall… Excess for-sale housing supply Shadow rental market expands Economy in a recession… Job losses mount
Now just to update our two graphs we looked at earlier. Home construction has been curtailed dramatically in the last three years. Again we peaked back in 2005 with almost 11,000 new homes and we have permitted approximately 2,000 so far in 2009. The good news here is that we have stopped fueling the excess housing supply and shadow rental market
This graph looks specifically at apartment starts. And unfortunately what happened as the for sale housing market started to cool, developers turned from building condominiums to building rental apartments So apartment development kept booming into 2009. However, development cam to a stop in the second half of 2009. There were no new units started in the last six months There are only 630 units currently under construction. So at least there should not be an issue with new supply flooding the market with empty units going forward
The bad news is employment Charleston has gone from job growth of 4% annually in 2006 and 2007 to a reduction in employment of (-2%) in 2009 and most economist are not predicting any job growth in 2010. Of course if Boeing comes out and announces its putting its new manufacturing plant in Charleston versus Washington then that’s 3,000 new jobs which would be a huge boost for the economy
This graph shows the relationship of supply and demand in Charleston region over the last 10 years. The red line represents units coming on-line and the blue line is demand. Supply growth is constrained by financing, market conditions and cuts at development companies The recent upturn in demand can be attributed to three things: Apartments have reduced rents to they now look more favorable compared to other housing alternatives. Apartments have reduced standards for qualifying renters. Renters moving back from Shadow market housing to traditional apartments. However, Demand will be moderate for a while as the recovery is expected to be a jobless recovery We still have competition from renters becoming owners $8,000 tax credit and low mortgage rates encouraging homeownership. Tax credit is due to expire at the end of November but that could be extended
This graph compares occupancy rates with rent growth over the last ten years. As you can see occupancy rates and rents have been steadily declining over the last 2 years. We believe occupancy rates have probably hit bottom although there may be slight dip over the winter months. However, occupancies will remain below 90% through 2010. Rental rates will probably continue to fall as concessions remain in place to attract renters away from the shadow market and to compete with the $8,000 tax credit. We do not see any significant improvement occurring until 2011
Now that I have gotten all of the bad news out, let me point out some positive things
Here is just a recap on current development projects as I said it has slowed down tremendeously with only five communities adding units. Woodfield at St. James in the Goose Creek market is fisnishing its final 136 units (may actually be done by now) EYC is expected to complete in January the final 124 units At Silvan Oaks in the Summerville market Evans & Evans has the final 38 units remaining at Summerfield in the Summerville market Carroll Investment Properties has a 168 units remaining underway at Boltons Landing in West Ashley And there are 164 units remaining at Woodfield South Point also in the West Ashley submarket There are 8 proposed projects but with the current economy and lack of available financing it is unlikely that many of the units will be built in the near term 100 at the Naval Yard 275 units at Channel at Bowen 295 units at Angel Oak 320 units at Alexander at daniel Island 400 units at Town Square at Daniel Island 304 units in a second phase at Ingleside Plantation 59 units at Oakbrook Park 316 units at The Park at Grand OAks
Median Vacancy rate among all communities is only 8.3% Stabilized communities less than 30 years in age, vacancy rate is 8.5% Class B properties generally outperforming class A and C
Goose creek area has a vacancy rate of 13.5% which is the highest in Charleston ( due to recent new supply ) Higher vacancy among newer communities (lease up at 30% and 1-5 years in age at 13%) compared to 6-30 year old with a vacancy rate of only 7%
Overall vacancy rate is 10.9% Excluding lease up and those more than 30 years in age, occupancy is 96% Mt. Pleasant accounts for only 10% of overall rental market but it accounts for nearly half of all units renting for $1,000+
Nearly half of all units in North Charleston are more than 30 years old and virtually nothing built in last 15 years 12.1% vacancy Lowest rents among the submarkets. $100 discount to the market average and rents are down 6% in the last year.
Summerville is the largest submarket, accounts for one-quarter of the entire supply The majority of units in Summerville are less than 5 years old. Nearly 3,000 units built since 2006 Vacancy rate is 11.1%
West Ashley also accounts for one-quarter of supply The majority of communities in are more than 30 years old Highest occupancy rate in region at 90.6% Rents fell -5.4% in the last year
And if anyone has any questions, I will be glad to try and answer them.
Demographic trends remains very much in favor of apartments in the coming years. The population that is 20-34 years in age makes up the largest segment of the rental market and this age group is expected to grow rapidly from 2007-2014. This is the Echo boomer ( the children of the baby boomers). The Echo boomer population is expected reach 80 million and those 80 million will probably enter the housing market as renters.
Although lending standards have tightened, mortgage rates remain near historical lows.
Housing Market The area saw rapid price appreciation from 2002-2006 which fueled the building speculation. The average home price in Charleston in 2000 was $140,000 In 2007, the average home price reached $220,000 This rise in prices and the over zealous lending industry created the housing building boom
Vacancy Rates… <ul><li>Overall vacancy rate for the area is 11.1% down from 15.3% </li></ul><ul><li>Median vacancy rate among all communities is only 8.3% </li></ul><ul><li>Stabilized communities less than 30 years in age, vacancy rate is 8.5% </li></ul><ul><li>Class B properties generally outperforming class A and C </li></ul>
Submarkets… <ul><li>Goose creek area has a vacancy rate of 13.5% </li></ul><ul><li>Higher vacancy among newer communities </li></ul>
Submarkets… <ul><li>Mt. Pleasant’s overall vacancy rate is 10.9% </li></ul><ul><li>Excluding lease up and those more than 30 years in age, occupancy is 96% </li></ul><ul><li>Mt. Pleasant accounts nearly half of all units in the metro area that rent for over $1,000 </li></ul>
Submarkets… <ul><li>Nearly half of all units in North Charleston are more than 30 years old </li></ul><ul><li>12.1% vacancy </li></ul><ul><li>Lowest rents among the submarkets </li></ul>
Submarkets… <ul><li>Summerville is the largest submarket, accounts for one-quarter of the entire supply </li></ul><ul><li>The majority of units in Summerville are less than 5 years old. </li></ul><ul><li>Vacancy rate is 11.1% </li></ul>
Submarkets… <ul><li>West Ashley accounts for one-quarter of supply </li></ul><ul><li>The majority of communities in are more than 30 years old </li></ul><ul><li>Highest occupancy rate in region at 90.6% </li></ul><ul><li>Rents fell -5.4% in the last year </li></ul>