Cities where apartment construction is most aggressive are filling new units and tolerating rent increases, according to a report in National Real Estate Investor.
The success of multifamily developers in cities like Denver, Seattle and Charlotte, NC, the report said, has led builders to plan more construction and even begin work on their next projects before finishing those already in the works.
Greg Willett, chief economist of property management software firm RealPage, told the publication that developers are sticking with what works: “We’re tending to continue to build most heavily in the same spots,” he said.
Among the 10 markets where apartment construction is heaviest, Houston is the only one having trouble absorbing the new inventory, according to research conducted by RealPage research arm MPF Research.
Rents there grew 1.8% over the last year, compared with 5.2% over the past three years. The 32,000 apartments under construction in Houston could flood the market and push rents down further over the next year or so, said Willett, who noted that falling oil prices have hurt the city’s economy.
Jay Parsons, director of analytics and forecasts for MPF Research, said that even in the top markets where plenty of demand exists to fill newly constructed units, vacancy rates are beginning to tick upward in downtowns. As a result, builders, who are still “disproportionately focused” on downtown markets, are planning future projects for elsewhere in the cities.
“That’s an encouraging shift,” Parsons said.