Apartment construction is booming and with the Oklahoma City and Tulsa economies beating the country’s, Oklahoma is at ground zero.
That’s according to Mike Buhl, multifamily property broker and owner of Commercial Realty Resources Co. in Norman.
There aren’t enough apartments available to meet investor demand, he said, and developers are stepping up.
“Investors that can’t get their hands on the product they want at the yield they want are turning to development,” he said in a midyear apartment market report. “And because vacancy is down and rents are rising, multifamily construction is booming.
“There are really no other options for investors that want to be in the market and can’t find existing core product.”
UBS Financial Services Inc., in fact, ranked Oklahoma City at No. 1 and Tulsa at No. 11 earlier this month in a proprietary updated ranking of the top 58 most attractive metropolitan multifamily markets.
In compiling the ranking, the subsidiary of Swiss UBS AG used its own data plus information from the U.S. Census, CBRE, Real Capital Analytics, the National Association of Realtors and other sources.
“We evaluated many factors in our analysis including job growth (for the past two years and projected for the next two years), rent as a percent of after-tax monthly homeownership costs (to measure the rent-/buy calculus), the past four quarter average multifamily transactional cap rates, new rental capacity additions over the next 12 months as a percent of existing rental inventory, net unit absorptions as a percent of net unit completions over the past five years, current vacancy rates, rent growth” and other metrics, a UBS report by Jonathan Woloshin shows.
Woloshin said UBS gave extra weight to job growth, new capacity and the cost of renting versus the cost of homeownership, and noted that “the choice of evaluative metrics and weightings was very subjective and based on myriad conversations with multifamily investors and owners across the country.”
In Oklahoma City, Buhl said, the strength of the local economy — especially the energy base, led by strong exploration and production companies — is the driving force “putting Oklahoma on the radar screen of investors from across the country.”
Tulsa, although its manufacturing took a hit with the rest of the country, has been recovering faster than the nation since 2011, Buhl said.
Buhl sees strong rental demand and sustained investor demand, rising property values and continued apartment construction in the near term. He called the outlook “bright but not very bright.”
But for the longer term, with growing supply, vacancies could trend up, drawing rents back down and leading to rent deals and other landlord concessions, he said. New properties in pockets where a high concentration of units are being built could be especially exposed, he said.
Oklahoma City sales
Buhl tracked 15 apartment sales in Oklahoma City the first half of 2014 — properties with more than 25 units — for a total of 2,609 units, down from 2,609 units at midyear 2013.
Sales volume was $100.6 million, down from $107.6 million the first half of last year. The average price per unit was $38,587, compared with $39,926 at midyear 2013.
Buhl tracked 17 sales in Tulsa the first half of the year for a total of 3,233 units, up from 1,860 units at midyear 2013.
Sales volume was $93 million, up from $42.8 million the first half of last year. The average price per unit was $28,790, compared with $23,022 at midyear 2013.