NYC Metro Area Continues to Lead Nation in New Apartment Construction
BY ROBERT J. SHEEHAN
The New York-Northern New Jersey-Long Island Metropolitan Statistical Area (MSA) widened its lead as the nation’s largest apartment construction market during the first half of 2005. Permits issued for apartments (structures with five or more units) during the first six months of this year totaled 16,667 units.
The New York MSA experienced a huge 79 percent increase in apartment permit activity from the same period last year when structures with 9,342 units were approved. Apartment demand is supported by the labor market that improved further in the Greater New York area during the 12-month period ending in June. A net of more than 70,000 jobs were added by employers in the metro area. The improved local economy is driving all segments of the apartment market—rentals, condominiums and cooperative units.
Tightness exists in the rental apartment markets in New York-Northern New Jersey-Long Island metro area with vacancy rates slightly above 3 percent. Rents increase in the greater metro area average about 3.9 percent this year. One sobering fact is that while rents are rising at about a 4 percent annual rate in Manhattan, the current rents average $2,815—a level below the record high of $3,000 established in mid-2000.
Condo and co-op prices are especially strong in Manhattan. Apartments sold in the second quarter at an average price of $1.190 million, up more than 30 percent from more than a year ago. And the median at $715,000 is also up more than 30 percent. It is estimated that condos and co-ops accounted for well over half of the apartment permits in the Greater New York area during the past two years.
Miami-Fort Lauderdale-West Palm Beach ranked second among MSAs in apartment permits during the first half of this year. Permits were issued for 9,892 units through June, up 23 percent from the 7,678 units recorded for the same period a year ago. A driver in demand is employment growth with the addition of more than 71,000 jobs over the two-year period ending in June. Job growth, however, is moderating. Rental market conditions, which are improving, are being helped by condominium conversions. The rental apartment vacancy rate in the metro area is falling. It was 3.6 percent in Fort Lauderdale and 3.8 percent in Miami in the second quarter, according to the REIS. Rent increases average between and 3 percent and 4 percent.
Housing permit activity declined in the first half of the year in Los Angeles-Long Beach-Santa Ana from a year ago, but that MSA dropped only to third place, from second in 2004. Permits issued for apartment units totaled 7,269 units through June, down 14 percent from the 8,474 units issued permits over the first half of 2004. Rental apartment market conditions in the greater metro area are relatively strong. Rental apartment vacancy rates are near 3 percent in Los Angles County and at about 3.5 percent in Orange County (Anaheim-Santa Ana), according to Marcus Millichap. Rent increases are strong with 5 percent increases in Los Angeles County and 4 percent in Orange County due to employment gains and affordability problems in for-sale housing aid the rental apartment market. Employment rose by 110,000 jobs during the two-year period ending in June. Housing prices in then OFHEO (Office of Federal Housing Enterprises Oversight) Index have been rising by more than the annual rate of 25 percent in both counties. Double-digit increases occurred since first quarter 2002. In Orange County, the double-digit increases go back to first quarter 2000.
The health of the apartment market in Houston has a long history of wide swings. Apartment permit activity during the past two years is well below the recent peak level recorded in 2002. Permits were issued for 5,851 units in the first half of this year, up 2.4 percent from the 5,789 units in the first half of 2004. This year’s level is 41 percent below the nation-most 9,923 units in the first half of 2003. Apartment construction in Houston was overbuilt and the apartment vacancy rate, according to REIS, ranked second highest in the United States at 10.8 percent in second quarter 2005. Economic activity is relatively healthy with 28,200 jobs added in the year period ending in June.
The Washington, DC-MD–VA–WV metro area placed fifth in apartment permits during the first six months of this year. Permits were issued for 5,850 apartment unit in the first half of this year up 5 percent from the 5,383 units from the same period a year earlier. The economy and housing market in D.C. are very hot. Employers added 68,300 jobs by the middle of this year from the same periods in 2004, which follows the 64,700 rise in jobs in the previous 12-month period ending in June 2004. All segments of the metro area housing market are strong. The rental apartment vacancy rate in investment grade apartments (A and B properties) was 2.5 percent in the second quarter, according to Delta Associates. Rent increases exceed 5 percent at annual rates. The condominium market is booming with more than 7,000 new units being sold during the first half of this year, Delta reported. The sales price of new homes has risen in double digits almost continually since 2000 and increases have been by more than 20 percent at annual rates, according to OFHEO. The local economy is being driven by the increased spending to fight terrorism.
The remainder of the top 10 apartment construction markets reported higher apartment permit activity during the first half of this year. Most of these increases were very pronounced with the exception of Atlanta, the sixth-most active market, which experienced a 2 percent increase. The remainder of the top 10 in order are Dallas-Fort Worth-Arlington, seventh with a 27 percent rise; Chicago-Naperville-Joliet, eighth, up 47 percent; Orlando, ninth with a 63 percent jump; and finally San Diego, up 40 percent.
Detailed data for these markets and remainder of the top 60 metro areas can be found here.
Robert J. Sheehan is NAA’s consulting economist. He can be reached at 703/491-7377.