Demand for apartments has average occupancy higher than in a decade, and rents are still on the rise even as a surge in construction is increasing supply.
Meanwhile, investors keep pushing sale prices up for good-quality, income-producing apartment complexes.
That's the state of multifamily property in the Oklahoma City area, according to three commercial realty firms that track apartments: Commercial Realty Resources Co., CB Richard Ellis-Oklahoma, and Price Edwards & Co.
A boom surge is on.
Average occupancy was 93 percent at the end of 2012, the highest since 2001, according to a report by brokers William T. Forrest and Eva M. Wills of CB Richard Ellis-Oklahoma. Occupancy was flat in Norman and Midwest City but rose everywhere else, they reported.
Edmond had the tightest market for renters with occupancy at 96 percent, Forrest and Wills said.
“2011 was an exceptionally strong year for rent growth and, as predicted, 2012 moderated to sustainable growth levels,” they wrote in the report.
Forrest and Wills said average one-bedroom rents rose from $482 to $495 per month, an increase of 2.7 percent; two-bedroom rents grew from $586 to $601 per month, a 2.6 percent gain; and three-bedroom rents went from $755 to $782 per month, an increase of 3.6 percent. This year, rents are expected to rise an additional 2.8 percent on average, they reported.
However, construction of new apartments probably will keep occupancy stable this year. Forrest and Wills reported eight complexes under construction and two others planned for a combined 2,635 apartment units.
Broker Mike Buhl said 3,000 or more units could be coming onto the market this year, and he wonders whether demand from renters or the lure of low construction loan rates is driving the buildup.
“It appears that apartment developers aren't going to slow down anytime soon,” said Buhl, owner of Commercial Realty Resources Co. “It's easy to see why multifamily construction is booming; vacancy rates are falling, and rents are on the rise, making investments in multifamily particularly attractive.”
Cheap money could be luring builders toward glut territory, Buhl cautioned.
“Despite the optimism ... there is concern of overbuilding. One reason to be cautious is low interest rates. Low-cost debt may be the driving force of new developments, even more so than the demand for those units,” Buhl wrote in his year-end report. “Also of concern is that the majority of new apartment units being delivered today fall in the luxury category, and there are only so many people that can afford them.”
David Dirkschneider, a broker with Price Edwards & Co., saw less cause for caution.
“Demographic and economic trends support a positive outlook for multifamily as more households are renting. Strong job growth will spur new household formation over the next few years as will the progression of ‘echo boomers' into their prime renter years, all of which points to construction activity ramping back up to pre-recession levels,” Dirkschneider wrote in a year-end report.
Dirkschneider and Buhl both tracked a 10 percent increase in apartment sales — by unit — with the value of properties changing hands at about $290 million last year, more than doubling 2011's sales volume.
The average price per unit on properties with 25 units or more ended 2012 at $60,513, up 94 percent from $31,122 the year before, Buhl reported. Dirkschneider calculated a slightly higher average for last year, $62,687. Investor demand for newer luxury properties drove the average up, they said.
Dirkschneider said the outlook remains bullish for investment sales.
“Transaction activity will continue to escalate this year as out-of-state investors and opportunistic real estate funds target value-added investments, and institutional investors target high-quality, well located assets in core areas,” he wrote, noting that Oklahoma apartments continue to offer better returns than coastal properties.