Apartment living gets pricier
Sep. 12, 2006
Copyright © Las Vegas Review-Journal
Second-quarter rents in Las Vegas rise 5.3 percent from year earlier, data show
By HUBBLE SMITH
REVIEW-JOURNAL
Strong occupancy rates in apartment buildings during the second quarter sent rents climbing in Las Vegas, Phoenix and Southern California, a Novato, Calif.-based research company reported.
The average rent in Las Vegas metropolitan statistical area was $847 a month, up 1.6 percent from $834 in the first quarter and up 5.3 percent from $804 in the year-ago quarter, RealFacts reported.
Henderson had the highest average rent at $945 a month with 96.3 percent occupancy, followed by North Las Vegas at $905 a month with 95.7 percent occupancy and Las Vegas at $832 a month and 96 percent occupancy.
Overall occupancy was 96 percent for 106,288 units in 362 properties valleywide, up from 95.2 percent in the first quarter and 95.1 percent a year ago.
“Vegas is still a very strong market,” David Baird of Sperry Van Ness brokerage said. “I look at other markets around the country and Vegas is picked as the No. 3 market in the country for multifamily housing. Concessions in the market are virtually gone.”
Unlike the single-family-home market in Las Vegas, which has more than 20,000 homes for sale, the apartment market lacks inventory, Baird said. That’s why he and his son, Brandon, were able to sell the 128-unit Elmwood Village apartment complex at 1400 E. Reno Ave. for $7.9 million, or $200,000 over the asking price. He had three offers on the property.
“The worse the single-family market gets, the better multifamily gets when they can’t afford to buy a house,” he said. “Centex is dumping a lot of projects. These guys (home builders) back off and we’ve still got an influx of people and these guys aren’t building. We’re going to have a shortage all over again and a run-up in prices.”
New-home building permits in Las Vegas have decreased 16 percent from a year ago to 15,847 through July, Home Builders Research reported.
Of the 29 metropolitan areas surveyed by RealFacts, only Fresno, Calif., failed to show apartment occupancy growth and none of the areas had occupancy below 90 percent, RealFacts sales and marketing director Chris Bates said.
“As expected, increasing occupancy exerted upward pressure on rents, with twice as many MSAs showing over 3 percent annual rent growth as a year ago,” Bates said.
He said it only makes sense that rents will continue to climb 5 percent to 7 percent in Las Vegas as they have for the past year and a half, especially given the slowdown in single-family home sales.
“People have to live somewhere and a lot of people moving to Vegas are in the service industry and don’t have the nest egg to plop down on a home,” Bates said. “There is some new (apartment) inventory coming in, so supply isn’t going to get so constrained that rents go up a lot.”
Rents at Elmwood Village, about a quarter-mile from the University of Nevada, Las Vegas, ranged from $535 a month for one bedroom to $635 for two bedrooms.
“They’re going to be raising those prices,” Baird of Sperry Van Ness said.
The highest rent shown by RealFacts is $1,510 in Los Angeles and Orange County, followed by $1,416 in Oxnard-Thousand Oaks-Ventura; $1,414 in San Jose-Sunnyvale-Santa Clara; $1,276 in San Diego-Carlsbad-San Marcos; and $1,110 in Riverside-San Bernardino-Ontario.
While up 7.4 percent from a year ago, Phoenix rents are still reasonable at $783 a month. Average rent in Reno-Sparks was $832, Salt Lake City was $694 and Albuquerque, N.M., was $676.
Tulsa, Okla., had the lowest rent in the survey at $532. Oklahoma City was next-lowest at $544.
Dan Shaw of Las Vegas-based Realty Management Inc. said he plans to build 780 Class A apartment units on Warm Springs Road near U.S. Highway 96 and 380 units in the Paradise Hills area of Henderson, but he needs higher rents to justify land costs.
“It’s very difficult,” he said. “The price of the ground has made it impossible. As rents go up, it makes it more feasible. We think by the time we’re out of the ground and deliver the units, rents will be where they need to be, around $1.25 to $1.30 a square foot.”
The average rent per square foot was 94 cents in the second quarter, RealFacts reported.
Breaking down the apartment mix in Las Vegas, RealFacts counted 43,271 two-bedroom, two-bath units at an average 1,026 square feet and $910 rent; 36,754 one-bedroom, one-bath units at 716 square feet and $754 rent; and 11,571 three-bedroom, two-bath units at 1,223 square feet and $1,030 rent.
Of the 362 apartment complexes, 149 were built in the 1990s; 131 in the 1980s; 44 in the 1970s; 28 in the 2000s; nine in the 1960s; and one before the 1960s.
RealFacts reported 32 sales transactions in 2005 for total dollar value of $929.2 million, compared with 55 transactions in 2004 for total dollar value of $1.33 billion.
One of the trends in the Las Vegas multifamily market is the rise and fall of condo conversion activity, Carl Sims of Hendricks & Partners said. Since 2003, more than 21,000 units in 81 apartment properties have been taken off the market, coinciding with the steady drop in vacancy rates.
Permits have been issued for more than 10,000 multifamily housing units over the past five quarters, Sims said. In contrast, there have been fewer than 2,000 new apartment units completed during the same period, including two quarters in which no units were added.
Average rental growth in Las Vegas has outpaced inflation as measured by the Consumer Price Index, he noted.
“The significance of this for apartment operators is that the increases made are generating more real income, which in turn gives them more purchasing power,” Sims said. “However, it appears currently that average rent growths are coming back closer to the rate of inflation.”