Tuesday, Jan. 20, 2004 | 11:14 a.m.
The Las Vegas apartment market appears to be recovering -- despite the large number of new units constructed last year -- as exceptional job growth locally and increasing land prices will boost apartment demand, industry experts said Monday.
Nationwide, continued low interest rates will continue to siphon renters into the condominium and single-family home market, Ron Witten, president of Dallas-based Witten Advisors and a member of the National Multi Housing Council's Research Advisory Group, said during a seminar at the International Builders' Show. But he said the formation of new households (under 30-year-olds graduating from college) will absorb much of the ample supply of rental apartments.
"There will be enough demand to cover supply for the first time in three years," Witten said of the national apartment market.
Also discussed during the multifamily forecast was the for-sale condominium share of that market, which also is expected to increase nationwide and in Las Vegas.
While Las Vegas wasn't among his top three markets where developers will build apartments regardless of the market conditions (those cities are Houston, Dallas, Atlanta), he said developers continue to build in Las Vegas as the area is strengthening, but cautioned that too many new apartments could outstrip any gains in absorption rates.
Vacancy rates in Las Vegas have fluctuated over the last year and perks, such as free or reduced rent, have been used to entice renters to apartments.
"Vegas and Orlando are early recovery markets because there are so many jobs" being created, Witten said. "The only thing standing in the way is if developers can build faster than jobs accelerate."
Last year, an estimated 6,000 apartment units were completed in Las Vegas with the vacancy rates ending at 7.5 percent, essentially flat from 2002's 7.9 percent vacancy rate, brokerage firm Marcus & Millichap reported.
This year, about half as many apartments are expected to be completed, Marcus & Millichap reported.
"Vegas can' stop building until people stop coming," said Chris LoBello, regional manager at Marcus & Millichap, Las Vegas. "As land prices continue to increase, the single family home is less attractive."
LoBello said because of local job growth, the demand should exceed the number of apartments that are scheduled to be completed this year, in line with national markets. While demand is expected to be strong and enough to absorb the new units, there is still excess supply because of the 6,000 units built in 2003. However, the expected strong demand will decrease vacancy rates slightly and will lesson the number of concessions given.
Owners are expected to increase asking rents by an average of 1.1 percent in 2004 to $730 a month.
David Seiders, chief economist with the National Association of Home Builders, said nationwide the condo market will strengthen and that demand will cause some apartment owners to convert buildings to for-sale condos.
He said that's partly because of demand and to financing used to fund apartments and condos. Banks rarely finance a condo project until at lest 50 percent of the units are presold, unlike apartments that often can obtain financing without preleasing deals, he said.
The condo share of new multifamily development will continue to rise from the quarter of all multifamily developed in 2003. That market share approaches levels experienced in the 1987 an 1993 booms in condo construction, said Seiders, formerly a senior economist at the Federal Reserve Board in Washington.
Locally, the market share of attached homes, which includes condos, duplexes and townhomes, is expected to increase, after falling to 10.4 percent at the end of 2003 from 11.9 percent in 2002, Dennis Smith, president of Home Builders Research Inc., said.
In 2003 about 2,700 attached housing units were completed, Smith said. That number is expected to jump to 3,500 for-sale attached units this year and 4,000 in 2005, he said.
"There is a lot of stuff in the tubes," he said. "It will also take a jump because of conversions of apartments to condos."
As the price of single-family homes continues to increase, buyers will begin looking for more-affordable alternatives, Smith said.
He said if given a choice, most buyers would choose a detached home over an attached home, but price will exceedingly dictate that decision in the future.
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