Apartment Deliveries to Slow in ’08, Stop in ‘09

June 13, 2008 - LAS VEGAS-New apartment projects are popping up around the region, mostly around the Interstate 215 beltway, to meet the anticipated demand expected from all the resort development occurring on the Las Vegas Strip. With only the Palazzo--the first of four major Strip developments done and open—-supply is currently out-pacing demand, according to a new report on the local apartment market by Hendricks & Partners.

H&P is forecasting that new apartment deliveries will slow to 2,300 units in 2008—from 2,725 units in 2007—and that approximately 1,200 units will be absorbed. In 2009, H&P is expecting no new significant apartment deliveries and absorption will total 1,600 units. In 2007, a total of 319 units were absorbed. In the first quarter of 2008, net move-outs totaled 1,678 units, according to H&P.

Apartment properties will continue to face significant competition in 2008 from condo rentals and single-family rentals, states the report. The average apartment vacancy rate will remain elevated and is expected to settle at 7.5% by year-end, while in 2009, stronger employment growth and an absence of new apartment deliveries will help drive the average vacancy rate down to 6.3%. Average rent growth will range from 2.0% to 2.5% over the forecast period, according to H&P.

On the investment front, only five or six apartment properties over 100 units changed hands in the first quarter, even as 29 properties are listed for sale, according to H&P. Last year 12 plus-100-unit properties changed hands in the first quarter, according to research by local apartment broker Michael Belnick.

H&P says part of the reason for the slowdown is that lenders are underwriting off of actuals and not pro forma, and are requiring larger down payments. Fears related to the problems in the single-family market and falling NOI have resulted in a significant bid-ask gap. Despite that, prices and cap rates for Las Vegas assets have seen little change in recent months, hovering between 5.5% and the mid-6.0% range, according to H&P.

One of the more recent transactions was the $35.85-million sale of the 288-unit Villa Serena Apartments in April. The 1996 apartment development in Henderson, NV, was sold to Fairfield Residential by Sentinel Real Estate Corp.