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Apartment Demand Slackens

Both Jack Goodman, president of Hartrey Advisors, and Ron Witten, president of Witten Advisors, agreed that current softness in the marketplace is due not so much to overbuilding as to disappointing job growth and historically low mortgage interest rates that are luring higher-income renters into homeownership.

Even some of the strongest sub-markets for apartments in recent years have been suffering, they said.

Goodman also pointed out that many renters who formerly lived in professionally managed buildings with five units or more have been moving into smaller buildings or renting single-family homes. However, the industry has probably seen the worst of the exodus to the for-sale market, he added, especially if interest rates start to rise as the economy picks up speed.

Retiring World War II baby boomers and echo baby boomers establishing new households bode well for the industry, especially condominiums, Goodman said, starting in 2005 and lasting through 2010. Condominium prices have been appreciating as rapidly as single-family houses, he said, and condo development will surge to meet rising demand.

Los Angeles, Norfolk, Philadelphia, Riverside, CA, and San Diego all offer “A-market development opportunities — with occupancy predicted to be 1% above equilibrium nine months from now,” said Witten.

Goodman forecasted that multifamily starts will decline to about 260,000 annually between this year and next, but eventually return to a very sustainable level of 300,000 to 350,000 later in the decade.

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