Sunday, August 7, 2011

Phoenix-area apartment occupancy, rents tumble

Phoenix-area apartment communities in the second quarter experienced the first significant decreases in average occupancy rate and monthly rent since the end of 2009, according to commercial-real-estate services firm Grubb & Ellis in Phoenix.

It is a disappointing reversal for apartment-property investors, but the firm's analysts said it's not unexpected and should do little to cool the hot investment market for multifamily housing.

The vacancy rate among Phoenix-area apartment communities increased to 9.7 percent in the second quarter, compared with a 9 percent vacancy rate in the first quarter, according to Grubb & Ellis data.

The average monthly rent at Phoenix-area apartment communities dropped by nearly $100 in the second quarter, to $718.48 compared with $815 in the first quarter, the data show.

Grubb & Ellis Vice President David Cravath said the decrease is partly seasonal, the result of students and winter visitors leaving the Phoenix area for the summer.

Investors are hoping the downward trend will reverse itself in August, they said, driven largely by back-to-school rental activity.

In the second quarter of 2010, rent prices remained flat compared with the preceding quarter.

The vacancy rate decreased in the second quarter of 2010, but not as dramatically as it would during the three quarters that followed.

Apartment properties have dominated the Phoenix area's investment market for commercial eal state for the past year, with about half of the purchases being made by real-estate-investment trusts, or REITs.

The other half of purchases have been made primarily by institutional buyers, said Grubb & Ellis Vice President Karl Albert, in addition to a handful of wealthy individuals.

Despite the second-quarter drop in occupancy and rent prices, Cravath and Albert said the long-term investment outlook for apartment properties remains strong.

They noted that occupancy rates improved in some areas of the Valley in the second quarter, including in Tempe, Chandler, Scottsdale and central Phoenix.

About half of those new tenants relocated from other areas, they said, while the other half comprised new renters who had been homeowners or living with family or roommates.

Cravath and Albert acknowledged that some actual and potential challenges exist for apartment investors in the current market.

Delinquent rent payments remain a problem for apartment owners, they said, because of excessive personal debt among tenants and the high cost of gasoline, utilities and other living expenses.

The prices many investors are paying for apartment properties today are based on the assumption that the Phoenix-area job market will improve in the coming years, they added.

Therefore, investors could end up losing if the jobless situation remains stagnant or deteriorates further.

As long as apartment-property buyers and real-estate lenders continue to practice due diligence, they said, it's likely that their future investments in apartment properties will continue to pay off.

"People expect apartments to have a more dominant role (in the housing market) in the next 10 years than they did during the past 10 years," Cravath said.

by J. Craig Anderson The Arizona Republic Aug. 2, 2011 12:00 AM

Phoenix-area apartment occupancy, rents tumble

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