Deepening job losses are pushing vacancy rates in the Las Vegas apartment market to historic highs, real estate services firm Marcus & Millichap says in a third-quarter report. In turn, multifamily investors poised on the sidelines are anticipating deep discounts as fundamentals continue to weaken.
The apartment vacancy rate reached 9.7% for the year ending in the second quarter, and the rate is projected to climb to 10.7% for 2009, a 280 basis point jump over last year, according to the Encino, Calif.-based firm.
“Sales activity has come to a near standstill in recent months as investors wait on the sidelines in light of projections for further fundamental deterioration,” says John Vorsheck, regional manager of the Las Vegas office of Marcus & Millichap.
Reduced buyer demand is placing upward pressure on cap rates. Top-tier properties are closing with yields of about 7%, and lower grade assets are trading at about 100 basis points to 150 basis points higher. In the Las Vegas area, the median sales price has dropped 26% in the last year to $63,800 per unit.
The rising vacancy levels have put downward pressure on revenues, which contracted 5.5% over the past year, after a 0.6% increase in the prior 12 months.
Meanwhile, 2,500 units are slated for delivery this year, increasing inventory by 2%. Asking rents are projected to decline 2.8% to $841 per month. Owners are offering more concessions in response to the weakened occupancy levels, driving down effective rents 5.6% to $779 per month.
Class-A asking rents dropped 1.4% to $977 per month for the year ending in the second quarter. Lower tier asking rents fell 1.4% over the same period to $764 per month, Marcus & Millichap reports.
Rising unemployment continues to affect the market, as Las Vegas-area employers are expected to eliminate 63,000 positions in 2009, on top of 36,800 cuts last year.
The pattern of job losses pushing vacancy rates higher is holding true in other cities as well. A third-quarter apartment research report of the Houston market shows that contracting payrolls and a new supply of 12,800 units this year are expected to push the vacancy rate to 12.1%, a 200 basis point increase over 2008, says Marcus & Millichap. Houston’s payroll losses are expected to ease later in 2009.
In Jacksonville, Fla., where 25,100 positions were cut in the past 12 months, and 1,700 new apartment units will be completed in 2009, the annual vacancy rate is expected to rise to 13.7%, an increase of 150 basis points over 2008.