During the third quarter of 2010 nearly 100,000 apartment units were being absorbed nationally according to REIS. This rate of absorption had not been seen since 1999. Apparently the renters are back out in droves and believe that the economy is in recovery mode. This increase in apartment lessees increased the occupancy rate to 92.9% in the third quarter, up from 92.0% in the fourth quarter of 2009. Rental rates should improve given that little new supply is coming on soon.
Risks to the economy and the apartment market remain, however. Unemployment remains stubbornly high and house prices continue to slump. The price of gasoline is likely to remain high or higher through the summer driving season putting additional pressure on disposable income. In addition, there is no shortage of commercial loans made on apartments at the top of the market and those with five year terms are coming due.
According to the PwC Real Estate Investor Survey, nationally, overall capitalization rates for apartments are currently 6.51% on average and range from 4.25-10%. This is a large decrease from a year ago when overall cap rates stood at 8.03% on average. Average marketing time is also down, averaging 6.29 months versus 8.86 months the year ago quarter. Rents are seen as growing 0.93% on average versus a negative growth rate of (0.90) one year ago.
Where commercial property values are in the real estate cycle depends on who you get your data from. If you are a typical retail owner you probably feel like we are barely off the floor and 2007 is a distant memory. There are two widely used indexes that track commercial property values. The Green Street CPPI index focuses on REIT portfolios and includes pending sales in its analysis of property value trends. This index shows we are up 35 percent since a low in 2007, and 15 percent below the peak. In contrast, Moody’s index relies on settled repeat sales of properties valued at over 2.5 million dollars. This index shows that we have recovered 5.5 percent after falling 42.1 percent from a peak in October 2007. Which index do you belong in?
CoStar reports that there are 48% more distressed commercial properties today than in September of 2009. The distressed loans keep piling up and commercial foreclosures are currently 33% higher than 15 months ago (September 2009). So there is a big disconnect between the recovery in the apartment sector as compared to commercial real estate as a whole.
Marcus & Millchap’s 2010 review focused on the fact that real estate financing improved during the year and capital markets recovered. Commercial real estate fundamentals are generally stabilizing. Property values are stabilizing, and lender confidence improved during 2010. Credit spreads declined throughout the year, capital sources increased, and historically low interest rates continue.
Marcus & Millchap said “Apartments staged a strong recovery in 2010 well ahead of expectations, despite modest job creation and stubbornly high unemployment…All 44 markets in the Marcus & Millchap National Apartment Index will post employment growth, vacancy declines and effective rent gains in 2011, confirming a sweeping recovery and expansion in the U.S. apartment sector above expectations.
Although we are off the lows of the Great Recession, things are not so rosy. Your property tax assessment may need some adjustment even if you have received a reduction from the assessor. Do not leave money on the table. Appeal your 2011 property tax assessment and do what you can before tax rates rise.
Read more about commercial real estate property tax appeals. Contact the expert on Atlanta area property property tax appeals at www.fair-assessments.com