X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

(To read more on the multifamily market, click here.)

SAN FRANCISCO-Banc of America Securities is predicting high single-digit NOI growth for Bay Area apartment properties through 2007 due to the inaffordability of the single-family home and a lack of new apartment development. The report follows a tour of several Bay Area apartment properties owned by REITs such as Equity Residential, Archstone-Smith, United Dominion, Essex Property Trust and AvalonBay.

Average occupancy in the Bay Area has been rising steadily and now stands at 97.4% from its 2001 low of 94.4% following the telecom/dot.com bust, according to the report. Part of the reason for the improvement is supply. While there have been lots of apartment units converted to condominiums, the report found that no rental market rate apartments have been delivered for the past four quarters and that expected deliveries in 2006 will total only 480 units, only slightly better than the 406 units delivered in 2005. If construction completion expectations hold true, the Bay Area will have posted the two lowest annual totals since 1996, according to the report.

Two key fundamentals, population and employment growth, are expected to stay relatively tepid at 0.5% and 1% per year, respectively, through 2010, below the national average of 0.9% and 1.3%, respectively. However, the relative lack of job growth and low net migration has been more than offset by continued strong demand from investors and tenants along with the lack of new supply.

As a result, cap rates in San Francisco have fallen over the last three years. According to Real Capital Analytics, average cap rates on apartments have dropped 190 basis points from 8% to 6.1%. The spread between cap rates in San Francisco versus the rest of the nation has widened slightly over the past few quarters and is currently 200 basis points, which the report suspects is due to capital chasing product located in coastal markets that are hard to enter.

In conclusion, the report promotes companies like Archstone-Smith, Avalon Bay, BRE Properties and Essex Property Trust, which have assets “in high barrier-to-entry coastal markets where the wide spread between the monthly costs of owning versus renting gives landlords pricing power.” The report is more cautious regarding company like Apartment & Investment Management, Equity Residential, Post Properties and United Dominion, “which generate condo income and have exposure to markets where housing affordability is not as stretched.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

 

GlobeSt. Multifamily Spring 2022 (Formerly APTS)Event

Join 1000+ of the industry's top owners, investors, developers, brokers & financiers at THE MULTIFAMILY EVENT OF THE YEAR!

Get More Information
 

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt
Live Chat

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.