Apartment market may see slowing rental growth

Apartment rents may not grow as significantly this year.

Some property management companies may experience a tapering of rent growth for multifamily properties in the coming months, as more supply will increase in multiple metro areas.

Apartment vacancies have declined markedly in the past few years, as the figure dropped 220 basis points since 2009, when the figure peaked, according to a report from CoStar Group. There was an increase in average rent levels of more than 3 percent from the peak recorded during the previous cycle.

Despite this, many major markets may see some slowdowns in their rental growth. These include New York City, Boston and Washington, D.C., the report noted. There is positive news for some other markets, as Salt Lake City and St. Louis should see rental increases due to now-low inventory levels. There also should be rental spikes in the San Francisco area and Silicon Valley, which are some of the best performing markets in the country.

Total new units that should enter the national inventory this year could be as high as 140,000 in the biggest markets, the report explained. This would be approximately 30 percent higher than the average over the past 10 years. While demand won't likely jump significantly, it could remain the same or slightly lower than the average level.

There may be the same improvement in employment this year as there was in 2012, which could help the market continue to fill units, CoStar explained. Much of this may be from younger people, as young professionals were a force in apartment absorption during the final few months of last year. That helped total apartment demand jump markedly last year.

Apartment mortgage originations may jump this year
The continued improvements in the absorption may be further slowed by a jump in multifamily mortgage originations. Multifamily originations may rise by $100 billion this year, according to the Mortgage Bankers Association. There may be as much as $250 billion in total commercial originations this year, is more than 10 percent higher than last year

"2012 was a strong year for the commercial and multifamily mortgage markets, and 2013 is shaping up to continue the growth," said Jamie Woodwell, vice president of commercial real estate research for MBA. "Despite a 21 percent decline in the volume of commercial and multifamily mortgages maturing this year, we expect origination volumes and the amount of mortgage debt outstanding will both increase."

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