(Read more on the multifamily market.)

LAS VEGAS-Vacancies continued to tick up in the Vegas Valley apartment market, according to Applied Analysis, a locally based business research and advisory firm. Occupancy hit 93.5% during the third quarter, down 20 basis points from 93.7% at the end of June and down 230 basis points from 95.8% this time last year.

The average increase in vacancy was partially offset by the average per-sf rental rate, according to the report. The average rent was $0.99 at the end of the third quarter, up $0.01 from the end of June up $0.03 since this time last year.

The decrease in occupancy is in partly attributable to single-family homes and condominiums flooding the rental market as investors look to cover their costs until the for-sale housing market returns, according to Christopher Bentley, principal and broker of the locally based Bentley Group.

Another factor is a drop off in employment growth due to no significant resort openings in the past 18 months, but that is on the verge of changing. The market is on the leading edge of a building boom that includes over $30 billion of investment activity and 40,000 hotel rooms.

“While softer employment growth and rental activity within traditional for-sale units has impacted the level of occupancy and rent growth, we anticipate a more balanced environment to prevail over the longer run,” Bentley says. “The below-average employment performance in recent months is likely to shift to a high-demand environment over the course of the next 12 to 36 months as major hotel-casino properties start staffing up in advance of their openings.”

Indeed, given the imminent demand for workers and, therefore, housing, Applied Analysis principal Brian Gordon predicts that the for-sale market will begin to report signed of improvement by the third quarter of 2008, which should benefit the apartment sector. “Beyond the next couple of years, we believe more pronounced demand will prevail for apartment communities,” he says.

That could mean good things for the investment market, which has slowed way down from previous years. According to research by local apartment broker Mike Belnick, who has tracked sales in the market for the past 15 years. The number of properties, the number of units and dollar volume has been dropping since 2005. The only figure on the rise since that time has been the per-unit sales prices of larger properties, according to his third quarter report.

So far this year, 34 properties larger than 100 units have changed hands for $1.07 billion or $110,700 per unit (9,678 units). By last year at this time, 53 properties had changed hands for $1.48 billion or $102,300 per unit (14,504 units). By this time in 2005, 71 properties had changed hands for $1.8 billion or $87,100 per unit (20,653 units).

“The more sophisticated players are in this market,” Belnick says. “They understand replacement costs, new job growth and cost of ownership today.”

In the 5-99 unit category, 42 properties (933 units) have changed hands so far this year, down from 53 properties (1,436 units) through the first three quarters of 2006 and 135 properties (3,247 units) through the first three quarters of 2005. The average per-unit sales price this year is $71,900 per unit, up from $66,600 in 2005 but down from $80,700 last year.

“This segment of the market is having real issues with both values and lenders,” Belnick says. “The numbers just do not make sense for the most part and then if you want to purchase, the lenders are being very tough on underwriting. This seems to have the effect of increasing the average down payments to 30%. Not an enticing leverage position to be in, but a safe one.”

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