Double-Digit Apt Rent Growth Possible by 2014

CHICAGO-Optimism for rent growth and a belief in continued demand was shared by the all the speakers at the 2010 National Multi Housing Council’s Apartment Strategies Update and Finance Conference at the Peninsula Hotel this morning. However, they also agreed that job growth, lending and regulatory pressures need to improve.

While it’s true that heavily-distressed properties will continue to suffer, the upper and even the middle end of the multifamily market may possibly see double-digit rent growth in the next five years, said two presenters during an update on the economy and the apartment industry. “All the evidence points to a recovery,” said Hessam Nadji, managing director of Marcus & Millichap. “Clearly we are in much better shape, and that’s supported by numerous data points, such as the return of consumer spending. There’s still going to be problems, there’s still going to be workouts, but the biggest thing we have to fear is how we react to current nervousness,” he said.

Michael Cohen, global strategist for CoStar-owned Property & Portfolio Research Inc., agreed that consumption is coming back after a difficult 2009. “Are we out of the woods yet? No, we’re not expecting a roaring recovery, but we’re expecting to see good GDP numbers by 2012. Everybody in this room needs to remember where we were a year ago,” Cohen said.

He said labor market numbers are good, with 575,000 jobs created this year, including new jobs in manufacturing. “If we keep up this pace, which may not be possible, we could see 1.7 million new jobs. There’s pent-up demand for employment. The problem is that there’s now 10% unemployment, and 26 million people are underemployed. We probably won’t see a return to a full picture of employment, as we understand it, until 2014,” Cohen said.

Rent growth should be held until at least 2011, because of easy-to-access shadow rental market is diluting rent pricing power, Nadji said. However, because of a lack of new supply and a pent-up demand for new household formation and younger “boomerangs” who moved back in during the troubled past two years, he says 2011-2013 should prove to some of the strongest years for multifamily.

There is a strong divergence between the strength of the Class A multifamily market, and the B- and less properties, Nadji said. “There’s a definite flight to safety. We expect rent growth, when it starts, to hit the double-digit range, but the rest of the properties will suffer. As the market improves you may see the risk tolerance start to shift downward, but the lowest properties will be in trouble.