Wrap Up Report: NMHC 2014 Apartment Strategies Conference
During the first part of the apartment industry’s recovery cycle, apartment firms and investors were in hot pursuit of both acquisition and development deals in the six major coastal markets known as the “Sexy Six”-Boston, Los Angeles, New York, San Francisco, Seattle and Washington, D.C. However, as the recovery has matured, some market dynamics have shifted, raising the question of whether the Sexy Six still offer the opportunities afforded earlier in the cycle.
Two market experts-Jay Lybik, vice president of market research at Equity Residential, and Jay Denton, vice president of research at Axiometrics-offered their takes on what's happening in those key coastal markets during a morning session at the 2014 NMHC Apartment Strategies Conference.
- Boston. Like New York, the Boston market is still characterized by very low vacancy rates and good job growth. Despite these positives, the market still lags on rent growth. "Boston and NYC seem to have some good things going for them ... and they should have a better year next year," said Denton, adding, "They just haven't been newsmakers."
- Los Angeles. Denton called Los Angeles an "interesting story," in that based on underlying metrics such as low vacancies and good job growth, the market should be performing better than it is. However, Lybik said there was one thing to remember about the market: "We need to look at Los Angeles like South Florida. Both of these markets really were severely impacted by the housing downturn. And that's something that we forget as we moved on from the Great Recession. There's a lot of pain SoCal went through. ... [But] LA is getting back to a normal situation; it's just taking a little while for that economy to come back and get its mojo back."
- New York. New York has experienced some of the tightest vacancy rates in the nation and noteworthy job growth. In fact, the latest Bureau of Labor Statistics show that New York has added more jobs than any other market, according to Denton. So, why hasn't rent growth been better? Lybik said, "New York has fantastic top-line growth. But you start seeing the disconnect when you dig into what sectors are growing. Roughly 70 percent of the jobs created have been in lower paying industries--leisure and hospitality, for example."
- San Francisco. The rent growth in San Francisco has been phenomenal, climbing as much as 42 percent during the past four years. Lybik said that while this growth would seem almost too good to be true, there are some solid fundamentals buoying the growth rates. "Tech and construction wage growth has been phenomenal," said Lybik. "And wage growth will continue to be strong in tech and that will affect ability to keep pressing rents. Denton added that the Bay Area also has a significant amount of what he called "hidden demand," with 108,000 renters living in non-traditional buildings.
- Seattle. According to Lybik, Seattle is a bit of the anomaly in the group in that its growth accelerated more over the past two years than the previous two. While he acknowledge the increase in multifamily supply in the market, he said, "You can't forget the demand side. Seattle has continued to see very good absorption totals. The local economy is doing fantastic; job growth is above the national average. ... If you just focus on the supply side, you're going to miss a big part of the market.
- Washington, D.C.. Denton noted that the market has experienced a massive deceleration in rent growth in the past couple of years, largely a function of a tremendous new supply pipeline. However, Lybik said the step back is only temporary. "Once we get through 2014, there'll be a huge decrease in new construction. In 2016, there'll maybe be 2,000 units coming online. So, given the huge supply hitting in 2014, there will be a deceleration, but it will taper as the market collects itself."