The 411 for apartment investors
April 21, 2014
Over the past year I have provided current market insight on rents, sale prices and vacancy rates for office, retail and industrial properties. Today's commentary focuses on the fourth major commercial property segment — the multi-family or apartment market.
This sector consists of apartment buildings containing five or more units. (Duplexes, triplexes and fourplexes are generally considered to be "residential" properties in California.)
While for many it may not feel like it, the national recession has now been over for longer than it lasted. Throughout these recent post-recessionary years, the "shining star" of commercial property types has been apartments.
Apartment building investments benefited when much of the population began to be priced out of the housing market due to the recession.
Apartments now also appear to be benefiting from growing demand due to a relatively recent trend amongst younger people who no longer consider home ownership the "be-all and end-all."
Nationally, over the past few years, the percentage of American households who own their homes has been declining while millions of new renter households have been added. The result, on a regional and national basis, has been strong returns for apartment building owners and a significant increase in multi-family construction.
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In Nevada County, during the past seven years, most apartment building owners can take solace in the fact that they have fared favorably when compared to their fellow office, retail and industrial brethren.
However, local apartment owners have likely not seen the level of appreciation occurring in many parts of the country because job recovery in Nevada County, especially in high paying industries, has been weak, and this has served to restrain local apartment rental rates in comparison to those in larger metropolitan areas.
Following is a snapshot of the current Grass Valley/Nevada City apartment building market based on our recently completed "2014 Apartment Survey," wherein we track market-rate apartment complexes of 10 units or more. (Note: Low income/subsidized complexes are not included in this survey.) The following data stems from approximately 30 apartment buildings containing more than 500 units.
Our local apartment vacancy rate stands at approximately 3.5 percent, which compares favorably with the greater Sacramento MSA, where the apartment vacancy rate fluctuates between 5-10 percent. This rate also bests our current retail and industrial vacancy rates of approximately 5 percent and our office vacancy rate of over 13 percent. Here is a look at average rents for apartments in Grass Valley and Nevada City:
Studio Apartments: Average size – 400 SF; Average rent – $525
One-bedroom Apts: Average size – 603 SF; Average rent – $703
Two-bedroom Apts: Average size – 873 SF; Average rent – $878
Three-bedroom Apts: Average size – 1257 SF; Average rent – $1,085
One can see from the above rates that the price per square foot decreases — from about $1.31/sf to approximately $.87/sf — as the unit size increases. This is a typical in all property types and relates to economies of scale.
If you are considering investing in or selling an apartment complex, it makes sound financial sense to be aware of how the building in question compares with other similar properties in the competing market.
With commercial properties, value is derived primarily from income stream potential so it pays to know your market prior to investing or selling.
For more detailed information on the Grass Valley/Nevada City apartment market, please call Lock to request the complete "2014 Apartment Survey." Additionally available is the just-released First Quarter 2014 "Commercial Property Review," full of current Nevada County market trends and specific property details related to industrial, office and retail properties. Lock specializes in the leasing and sale of commercial/investment properties and has over 25 years of experience in the field, including over 15 years in the Grass Valley/Nevada City area. You may reach Lock by calling 530-470-1740 or visiting http://www.svnhighland.com.
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