Apartment, Office Forecasts Hinge on Job Growth

By Murray, Michael | Mortgage Banking, October 2010 | Go to article overview

Apartment, Office Forecasts Hinge on Job Growth


Murray, Michael, Mortgage Banking


As apartment vacancy rates drop, office vacancies will increase and put downward pressure on rents going into next year, according to Marcus & Millichap Research Services, Encino, California. The forecast said apartment vacancies will slip to 7.4 percent by the end of the year with asking and effective rents further increasing to annual gains of 2 percent and 3 percent, respectively. It added that the number of 18-to-34-year-olds living at home increased by 2.2 million between 2005 and 2009--"the highest level recorded in more than 25 years."

Based on a forecast of job-growth acceleration, a large portion of the 18-to-34-year-old demographic will establish independent households, leading "to the addition of 4 million individuals to the prime renter cohort from 2010 to 2015," Marcus & Millichap's forecast said. "Most young adults will head for apartment rentals, based on strict mortgage standards and elevated down-payment requirements for several years to come."

However, the report also said a double-dip recession or larger-than-expected economic deceleration could temporarily derail an apartment sector recovery.

"We do eventually need job growth," said Richard Anderson, senior real estate investment trust (REIT) analyst at BMO Capital Markets, New York, interviewed on CNBC. "We are calling for job growth to start to materialize sometime in the middle part of 2011. We think we can carry ourselves to that point--continue the growth trajectory to that point--but jobs are a necessary component to this business."

The unemployment rate increased to 9.6 percent in August, the Bureau of Labor Statistics reported, following layoffs of temporary census workers and increased hiring of part-time workers.

"It doesn't look too good right now--the economic data is not good--but we think it is a reasonable call to see jobs materialize sometime in the middle part of 2011," Anderson said.

"There is a significant divergence among [apartment] market performance," added Hessam Nadij, managing director at Marcus & Millichap, also interviewed on CNBC. "If you look at absorption numbers ... so far this year, they have been dominated by markets that have created jobs. …

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