Coburn & Feeley
 
 
 
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346 Shelburne Rd.
Hickok & Boardman Place, Ground Floor
PO Box 4057
Burlington, VT 05406


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Chittenden County Apartment Market
1/29/2014

Coburn & Feeley LRAt Coburn & Feeley, we want to make sure that you're informed about the local rental market. We asked Mark Brooks, a principal at Allen & Brooks, Inc., a commercial real estate advisory firm in South Burlington, VT., to share his analysis.

The Chittenden County apartment market is characterized by strong demand, limited supply, and rising rental rates. We have historically seen very low apartment vacancy. In 2013, apartment vacancy in Chittenden County averaged only 1.4%. This extremely low figure is actually equivalent to the average vacancy over the past 20 years, illustrating that the limited availability of apartments is nothing new. The low vacancy is putting upward pressure on rents, with an average increase between 2012 and 2013 of approximately 3%. Rents in newly constructed or renovated apartments in and around Burlington are routinely in the $850 to $1,100 per month range for studio apartments, $1,200 to $1,400 for one bedroom apartments, $1,300 to $1,650 for two bedroom apartments, and $1,500 to $1,950 for three bedroom apartments. These rents are based on the tenant’s responsibility for heat and electric charges.

Developers have taken note of the strong market fundamentals and have responded with significant new apartment construction. Over the past 14 years, there has been an average of 196 new apartments constructed each year in Chittenden County. In 2012 there were 390 new apartments constructed, and in 2013 there were 385 new apartments constructed. Construction in both of these years was about twice the lon term average. In 2014, the high rate of growth will continue with 369 new units expected to be brought to the market. In spite of the rapid growth, the new units have been quickly rented. Some buildings were fully leased when they became available for occupancy; others were fully leased within three to four months. With the rapid absorption of the new units, we have not seen a significant increase in apartment vacancy.

The tight rental market is a product of several trends. With the improving health of the local economy, younger people who had been living with their parents or in roommate situations are striking out on their own and renting apartments. This is exemplified by the strong demand for one bedroom units. In addition, many financially secure tenants who in past years would have chosen to buy their first home are instead electing to remain in the apartment market. This is partly as a result of the more stringent mortgage financing requirements which made home ownership a more difficult goal to achieve for many people. High student debt load also detracts from the ability of many to afford home ownership. For others, home ownership has lost some of its luster and apartments represent protection from future declines in the housing market along with greater flexibility should they choose to relocate. In addition, with the many new apartment complexes, renters may be able to live in a newly built home, while home ownership would likely require them to buy an older home needing upgrading.

With strong tenant demand, low mortgage rates, and available financing, apartments are a comparatively low risk investment. These factors have drawn investors to the apartment market. The number of apartment sales has steadily increased each year as the economy moved out of the recession. In 2013, the number of sales was almost 50% above the 2010 level, which was the low point in sales over the past 10 years.

Looking at 2014, we may see a reduction in the number of sales because of limited availability of apartments which are for sale. Its apparent that many owners recognize that they have a very good investment and are reluctant to sell. With the lack of inventory, investors in the market are focusing on the limited number of available properties. The result has been increasing sale prices, which have averaged about 3% annually in recent years.

Looking forward, the overall rental demand will remain robust. The improving economy and job growth will bring more renters to the area. However, it is likely that the surge in new construction will modestly increase vacancy and reduce some of the upward pressure on rents. In addition, the improving economy will also support the owner occupied housing market. With low rates and more confidence among buyers, we have seen an increase in sales of single family homes. While we don’t expect the housing market to return to the boom times experienced before the recession, this trend will reduce demand for rental housing as most new home buyers are former renters. However, given the depth of the renter demand, and evident trends in the market which favor rentals, we expect that the local apartment market will remain strong.

Mark Brooks is a principal at Allen & Brooks, Inc., a commercial real estate advisory firm in South
Burlington, VT. The information on the apartment market was provided by the Allen & Brooks Report, which provides detailed analyses of trends in the Chittenden County commercial real estate markets. The Report is sold to subscribers.

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