NEW YORKCITY-The expanding housing inventory in the US is weighing heavilyon some markets, particularly those in the Sunbelt. That's just onetakeaway from Bank of America's latest property manager survey,which polled more than 2,500 property and leasing managers whooperate in 15 of the largest multifamily markets in thecountry.According to the locally based firm, the survey is aneffort to gauge trends in market conditions from those active inthe leasing field; and the results should serve as a took tomeasure local market fluctuations and general trends on how rentersand landlords are responding to changes in job growth, interestrates, the for-sale market and new apartment supply. The resultsare based on an index of 50, with scores higher than thatindicating positive or improving trends, while those less than 50indicating that trends are worsening.
The poll indicates that occupancies and rents actually improvedmonth to month, though demand is not meeting expectations. The rentindex is up three points from 51.7 in April, while the Mayoccupancy index score of 50.7 is up 1.9 points from the priormonth. Most of the survey participants said rent and occupancytrends were flat, though 20% reported lower rents and 26% sawoccupancies decline. The amount of incentives offered went up lastmonth as well, as more landlords try to lure tenants withconcessions to keep occupancy levels up. Some 33% of those polledsay incentives had increased, and 46% say they had remained thesame. Overall, the incentive index is down 2.2 points to43.8.
Although the index for traffic levels is up from 32.5 in April to39.6 in May--the lowest level recorded so far this year--38.7% ofsurvey participants indicate that traffic is worse than expected atthis time of year, while just 18.3% said demand trends are betterthan expected. Still, leasing showed a bit of improvement, withthat index rising from 43.9 in April to 45.1 in May.
The single-family market is a significant negative force forapartment managers, about 67% of which say there is some orsignificant competition from that segment. On the plus side,apartment managers are reporting little pressure from newtraditional rental units in their markets. Almost 60% of thosepolled indicated there was none or little competition, while 10%are seeing significant competition from new construction. Still,the index figures don't necessarily reflect those trends--thesingle-family competition index dropped to 40.1 in May from 42.4 inApril, its lowest monthly level so far this year, and the rentalconstruction index went up four points to 58.7 in May.
Broken down by market, those with the most pressure from inventoryare, not surprisingly, underperforming. Texas, for one,deteriorated significantly. While local REIT management teamsreported positive performance in the first quarter, the surveyreflected a decline in trends, with 60% of respondents reportingworse-than-expected demand in May. In Houston, the traffic indexflat-lined at 33.4 for the past two months, and while excesshousing supply kept Las Vegas and Phoenix down, Florida showed somerelative improvement after a weak April.
Markets in which landlords offer the most concessions arepredominantly in the Sunbelt, including Phoenix, Tampa and Atlanta.In these areas, apartments are competing with single-family homesand condominiums that have been put in the rental pool. Theincentive index for nine of 15 markets was below 50. The bestmarkets, meanwhile, are in the Pacific Northwest. Year-over-yeartraffic trends met expectations in Seattle, while the Bay Areashowed improvements. Lower down along the West Coast, SouthernCalifornia's performance weakened as Los Angeles and Orange Countysaw a dip in demand.
BofA analysts gave a marketweight rating for apartment REITs, but"remain cautious over the next six to nine months as we see moreheadwinds than upside catalysts--given potentially decliningtraffic levels, deteriorating economic indicators and limitedvisibility on where property-level growth and cap rates willultimately shake out." Their top pick is Essex Properties Trust,due to its lower-priced West Coast portfolio of class B assets inpremier locations, which are "better protected than its peers froma continued deterioration in the single-family housingindustry."