Vacancy Rate Expected to Rise Another 50 Basis Points By End of 2014, According to CoStar Forecast

Multifamily construction increased 8% in July, continuing a yearlong upward trend, with several large new projects starting last month, including a $350 million multifamily tower in Queens, NY; a $260 million condominium tower in Honolulu and the $160 million residential portion of the $300 million mixed-use building in Los Angeles.

According to U.S. Census Bureau numbers released this week, multifamily spending in the residential sector increased a slender 0.2% between June and July, rising from $43.2 billion to $43.3 billion. But the most significant story is the year-over-year comparison: spending improved 41% from July 2013.

New York City, Washington D.C., Los Angeles, Miami and Boston remained the top five metropolitan areas ranked by the dollar volume of new multifamily starts through the first seven months of 2014.

The apartment-building boom will continue through at least next year, according to an early survey of CRE executives' sentiments for 2015.

Asked how much development will commence in the U.S. in 2015, respondents to the Commercial Real Estate Outlook Survey released Wednesday by tax advisor KPMG LLP identified multifamily as the top construction sector, with 53% expecting a "significant amount" of new product to launch, up from 43% in last year's survey.

"The rapid migration of young adults and baby boomers to urban areas coupled with displaced homeowners following the housing crisis remain key drivers of multifamily housing development," said Greg Williams, national leader of KPMG's Real Estate practice. "Though investment opportunities exist, real estate executives should be mindful that the growth potential of multifamily housing could wane given the large influx of capital the sector has already received, driving prices up."

Vacancy rates in the 54 largest markets tracked by CoStar Group remain at a 10-year low. However, the trend has clearly begun to reverse course. The national vacancy rate has risen roughly 30 basis points over the last three quarters to about 5.5% as supply has overtaken demand, and CoStar is forecasting another 50-basis-point rise in vacancies through the second half of 2014. New supply, rather than diminished demand, is driving the vacancy rise, real estate economist Francis Yuen noted during the recent CoStar Midyear 2014 Multifamily Review and Outlook, co-presented with CoStar director of U.S. research, multifamily Luis Mejia and quantitative analyst Mark Hickey.

Apartment developers delivered roughly 170,000 units last year with an additional 260,000 units scheduled to be completed by the end of 2014, CoStar data indicates.

Multifamily starts and permits are well above historic levels nationally and continue to trend upward, and markets like Dallas, Houston, Seattle and Washington, D.C. have each logged more than 10,000 deliveries. In the first two quarters of 2014, construction started on more than 160,000 apartment units, putting the nation on pace to exceed last years 290,000 starts.

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Apartment Supply Wave Begins to Exact Toll On Market Fundamentals

View Larger The Bottom Line Other Business Features Local Stories from ThisWeek More Articles By Jim Weiker The Columbus Dispatch Wednesday September 3, 2014 2:17 AM

Columbus has plenty of microbreweries, but is it ready for micro-apartments?

The Dublin development company Stonehenge hopes so.

Stonehenge has proposed a micro-unit apartment complex at the southwest corner of N. High Street and 3rd Avenue in the Short North.

The six-story building would include 32 studio apartments, all of them 540 square feet about half to two-thirds the size of a typical central Ohio one-bedroom unit.

Theres a tremendous movement toward efficiency, that less may be better, said Stonehenge President Mo Dioun.

We would like to be a pioneer in that area, to test this. We believe the community is ready for a smaller residential option.

The ground floor of the complex would include a lobby, retail space and spots for 32 Smart cars, which take up about half the room of conventional cars.

Dioun and Jonathan Barnes, the principal in JBAD architecture firm, who designed the building, said the project is a response to high demand for Short North apartments coupled with the high cost of building apartments in the neighborhood.

This is a trend in cities where theres a lot more pressure to develop, in New York and San Francisco, Barnes said. We have our own version of that in the Short North. So this was a matter of taking an idea thats been successful elsewhere and applying it to the Short North.

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Micro-unit apartments proposed for Short North

WASHINGTON (AP) U.S. construction spending staged a strong rebound in July, rising by the largest amount in more than two years. All major categories of construction showed gains in an encouraging sign that spending on building projects will help boost the economy in the second half of this year.

Construction spending rose 1.8 percent in July, the biggest one-month gain since May 2012, the Commerce Department reported Tuesday. It followed a 0.9 percent decline in June, the largest setback in a year. That decline had been blamed in part on soggy weather which depressed construction activity in many parts of the country.

The July rebound pushed total construction to a seasonally adjusted annual rate of $981.3 billion, the highest level since December 2008. Spending on housing, non-residential and government projects all increased.

Construction spend is now 8.2 percent higher than it was a year ago as it continues to advance following a deep plunge during the Great Recession when builders sharply cut back because of a glut of unsold homes.

Housing construction was up 0.7 percent in July to an annual rate of $358.1 billion after two months of declines. Spending on single-family homes rose 0.5 percent and is 9.4 percent higher than a year ago while apartment construction rose 0.2 percent and is 41 percent higher than a year ago.

Spending on non-residential projects increased 2.1 percent to an annual rate of $343.6 billion with the strength led by gains in hotel construction, electric power transmission and manufacturing.

Spending on government projects rose 3 percent, the largest gain since October. Spending on state and local projects was up 3.4 percent, offsetting a 1.1 percent drop in federal construction spending.

A slump in construction in the winter contributed to the economy, as measured by the gross domestic product, shrinking at an annual rate of 2.1 percent in the January-March quarter. That was the biggest plunge in GDP since the first quarter of 2009 during the depths of the Great Recession.

But the economy rebounded sharply in the April-June quarter, growing at an annual rate of 4.2 percent. Economists think economic growth will continue at a solid pace in the second half of this year although an initial forecast of 3 percent growth in the July-September quarter may be trimmed following a report Friday that consumer spending fell in July. Economists remain optimistic that Americans will resume shopping in coming months, helped by rising employment and stronger consumer confidence.

In the spring, residential construction grew at a 7.2 percent rate after two quarterly declines and spending by businesses on construction projects rose at an annual rate of 9.4 percent.

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Construction Spending Staged Strong Rebound in July

HOLLYWOOD

It's been awhile since construction cranes have graced downtown Hollywood.

That's about to change.

For more than a decade, Hollywood has courted development, aiming to revitalize its downtown. After a stubborn recession and a long wait, downtown Hollywood is finally on the verge of a building boom.

Old buildings long past their prime are slowly giving way to more cosmopolitan buildings.

In August, a 12-story apartment building that occupied the northeast corner of Young Circle for the past 36 years was reduced to rubble. In its place will rise a 25-story apartment tower. The aging Great Southern Hotel on the west side of the circle will soon be replaced by a 19-story apartment tower.

Plans are also in the works for the Hollywood Bread Building on the circle's south side and possibly the Publix plaza on the east side, officials say.

"Someone might leave Hollywood for a few years and come back and not know where they are," Commissioner Dick Blattner said, only half joking. "They'd think, 'This is not the Hollywood I left five years ago.' That would be a good thing."

It's all about the timing, says Jack McCabe, a real estate analyst in Deerfield Beach.

Since 2012, developers have announced plans for 237 new condo projects and 68 major apartment complexes in Broward, Palm Beach and Miami-Dade counties, McCabe said.

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Hollywood's downtown on verge of building boom

The no paws rule at one New York City luxury apartment building has dog owners howling.

The New York Post reports that management at Hawthorn Park has ordered residents to carry their dogs across the lobby floor of the building, which is made of marble.

In addition to not allowing dogs to walk on the lobby floor, Hawthorn Park bans dogs over 15 pounds and also makes any resident with a dog take the service elevator.

While some dog owners were miffed at the draconian rules, most seemed resigned to accept them. Residential buildings in New York City are notorious for having strict dog policies.

The new apartment building, which is still partially under construction, offers leases starting at $5,000 per month for a one-bedroom unit.

Glenwood Management, owners and operators of Hawthorn Park, did not return the New York Posts request for a comment.

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Swanky apartment building bans dogs from walking on lobby floor

A 10-unit apartment house with three affordable units is proposed at 2 Island Hill Avenue, on the corner of Danbury Road.

With Ridgefields request for an affordable housing moratorium awaiting a ruling by the state, the town has been presented with plans for a 10-unit apartment building under the states 8-30g affordable housing statute.

The affordable apartments are proposed in combination with an office building, at the corner of Danbury Road and Island Hill Avenue the site where plans for a Stop & Shop gas station were rejected by the Planning and Zoning Commission after vehement neighborhood opposition two years ago.

Can you imagine how much traffic that would have generated? said attorney Robert Jewell, who represents the applicants.

The application came in this week, and Town Planner Betty Brosius said she expected it to be formally accepted by the Planning and Zoning Commission next Tuesday and scheduled for a public hearing some time in the fall.

Itll probably be in the middle of October, she said.

The property is owned by John Morganti & Sons LLC, and includes a largely disused construction yard with a small garage at 65 Danbury Road and a vacant house at 2 Island Hill Avenue.

The plans submitted by Mr. Jewell involve dividing the property, creating separate lots for two projects:

A building with medical, dental and general business offices is proposed at 65 Danbury Road.

The apartment building would have a footprint of just over 5,000 square feet, with two floors above a drive-in basement with parking for seven cars. There would be spaces for another 12 cars outside.

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Affordable apartments, offices proposed off Danbury Road

"For quite a while the stocks were going nowhere, they were treading water, as people were worried about the looming new supply and wondering if there would be demand," said Calvin Schnure, vice president of research at NAREIT. "What we're seeing is, yes, there is new supply, but the demand is much stronger."

Multifamily construction reached an eight-year high in July, up nearly 50 percent from a year ago, according to the U.S. Census Bureau. Building permits for these apartment structures, an indicator of future construction, are 15 percent higher than a year ago.

"We are not worried about supply," said Alexander Goldfarb, a REIT analyst with Sandler O'Neill. "Right now we have homeownership rates depressed, as renters are still hesitant to move out to buy homes, and thus the demand for apartments continues to grow. Additionally, banks and lenders remain cautious on construction lending, and apartment developers are driven by economics. If they can't make the numbers pencil, they won't build."

Read MoreFlorida condo owners being forced out make plea to governor

Household formation surged in the second quarter of this year, but it was largely rental households. This, as rents gained ever more steam. Rents grew by 3.8 percent in July, as compared with 3.4 percent growth in July of 2013, according to Axiometrics, a Texas-based market research firm. Weak job and wage growth is keeping landlords from raising rents more, even as vacancies fall.

"Effective rent growth has increased for five straight months, but is still a long way from the summer of 2011, when the rate was in the 5 percent range," said Stephanie McCleskey, vice president of research at Axiometrics. "On the other hand, it's becoming more and more likely that 2014 will be the strongest overall year for the apartment market since the recession ended. This is the year of the apartment."

But is it the year of the apartment stock? Clearly the gains in the first half of this year were monumental, and advances like that are not always sustainable long term, especially in real estate.

"Are REITs overvalued?" asked Goldfarb. "Look at interest rates and the 10-year [Treasury]. The Federal Reserve remains focused on wage inflation and homebuying, so we don't see them raising rates anytime in the near future. So, with limited supply and prolonged low rates, REITs continue to look good."

Read MoreUS mortgage volume ekes out gain on tiny drop in rates

The apartment sector was actually underbuilt, between 2008 and 2011, according to Schnure. It is now several million units behind demand. As job growth improves, more young people will move out of their parents' homes and out of roommate situations and rent on their own. Wage improvement will also allow landlords to raise rents even higher.

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Are apartment stocks overheated?

The charred, buckled remains of Royal Terrace Apartments on Arnett Boulevard are coming down.

Charles Fulcher, inspections supervisor with the city of Danville, said Marshall Construction has applied for a demolition permit. Before the building can be demolished, Fulcher said an asbestos crew will have to go in and check out the structure.

During the early morning hours of Aug. 16, the driver of a 2006 Chrysler Pacifica rammed into the building, causing a natural gas leak that led to an explosion and fire; 22 people lived in the apartment building.

After the crew has examined the structure, they will decide if asbestos needs to be removed, Fulcher noted. If so, the company will have to apply for a permit to remove the asbestos, he added.

"The building is going to have to come down, but beyond that we havent made any decisions," said Ron Thompson, owner of the apartment building.

There are a lot of steps that have to be completed before the building can be demolished, Thompson added. The utilities have to be cleared, Thompson continued. But first, he has to get everything worked out with the insurance company.

Thompson is in the process of working out the insurance details which is going fine, he added but those finite details havent been completed yet.

James T. Barksdale, 35, of Danville, is suspected of ramming the vehicle he was driving into the backside of one of the complexs buildings, according to police. According to witnesses at the scene, Barksdale tried to flee the scene on foot but was apprehended by police officers.

Firefighters realized the accident caused a natural gas leak and started evacuating residents as quickly as possible, Danville Assistant Chief Steve Dishman. A number of people had already begun evacuating themselves because the impact of Barksdales car hitting the building woke them up.

Initially, there was no fire when firefighters arrived, Dishman explained. Shortly after firefighters arrived, the gas found an ignition source, which caused a fire and explosion.

Original post:
Apartment complex rocked by explosion scheduled for demolition

The charred, buckled remains of Royal Terrace Apartments on Arnett Boulevard are coming down.

Charles Fulcher, inspections supervisor with the city of Danville, said Marshall Construction has applied for a demolition permit. Before the building can be demolished, Fulcher said an asbestos crew will have to go in and check out the structure.

During the early morning hours of Aug. 16, the driver of a 2006 Chrysler Pacifica rammed into the building, causing a natural gas leak that led to an explosion and fire; 22 people lived in the apartment building.

After the crew has examined the structure, they will decide if asbestos needs to be removed, Fulcher noted. If so, the company will have to apply for a permit to remove the asbestos, he added.

"The building is going to have to come down, but beyond that we havent made any decisions," said Ron Thompson, owner of the apartment building.

There are a lot of steps that have to be completed before the building can be demolished, Thompson added. The utilities have to be cleared, Thompson continued. But first, he has to get everything worked out with the insurance company.

Thompson is in the process of working out the insurance details which is going fine, he added but those finite details havent been completed yet.

James T. Barksdale, 35, of Danville, is suspected of ramming the vehicle he was driving into the backside of one of the complexs buildings, according to police. According to witnesses at the scene, Barksdale tried to flee the scene on foot but was apprehended by police officers.

Firefighters realized the accident caused a natural gas leak and started evacuating residents as quickly as possible, Danville Assistant Chief Steve Dishman. A number of people had already begun evacuating themselves because the impact of Barksdales car hitting the building woke them up.

Initially, there was no fire when firefighters arrived, Dishman explained. Shortly after firefighters arrived, the gas found an ignition source, which caused a fire and explosion.

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Danville apartment complex rocked by explosion scheduled for demolition

David Alligood found a good fit in a small apartment when he transferred to Pittsburgh to supervise 12 regional stores for Target.

I live in a one-bedroom unit at River Vue, which is ideal for the amount of traveling I must do, said Alligood, 32, who wants to stay in the city where he has joined civic groups, runs in several races and enjoys the sports scene.

The North Carolina transplant fits into a trend that is driving an apartment building boom. According to data from the Census Bureau, builders nationwide broke ground on more apartment buildings during the past year than in any similar period since 1989. Higher home prices and mortgage rates are pushing young adults to rent instead.

In Pittsburgh, construction of apartments cooled off during the first six months of the year. New permits dropped by 50 percent from 2013, partly because of the severe winter, according to Ross-based research and consulting firm Tall Timber Group.

But demand from the key demographic young adults remains high, developers say. Investors, especially from out of town, are putting money into converting and upgrading apartments here to capture their business. The competition among young adults who see apartment living as a more affordable and flexible option than buying a home is pushing prices higher.

Landlords are not providing rent concessions. Rental rates are increasing 3 to 5 percent annually compared to 2 percent in the past. There has been high-paying job growth here, partially because of Marcellus shale, resulting in high rental rates a lot of newcomers to this region can afford, said Cindy Kamin, a commercial real estate broker with CBRE.

The increasing number of young professionals making Pittsburgh home are doing so in newer, trendy apartments that fit into their lifestyle, and developers are quickly looking to cater to that growing demographic. Oxford Development Co. has two projects under way, primarily aimed at renters age 25 to 34, said Shawn Fox director of development.

About 60 percent of the units are either studios or one-bedrooms because traditionally, these tenants do not spend a lot of time in their apartments, said Chuck Hammel of Pitt-Ohio Trucking, a partner with Oxford in the $60 million, 300-unit Three Crossings development set to open next spring in the Strip District.

Oxford's other development is the 117-unit Hot Metal Flats, a $24 million to $26 million development, set to open next spring in the South Side.

That 25-to-34 crowd is less interested in buying homes as they come out of school with heavy debt, fearful of a big mortgage, Kamin said. Some have not started their own families and don't view owning a house as a necessity.

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Young adults drive home rental trend in Western Pennsylvania