While we're closing out another record-breaking year, we're looking ahead to one that will be a little bit slower, but by all means healthy and stable.
To get an idea of how the industry is preparing to handle the maturing cycle, we asked five executives across the country to share their thoughts on current market conditions. Here, they reveal what surprised them this past year, what indicators they're watching now, and what has them excited about the year ahead.
For the COO of Alliance Residential’s property management division, next year will be a test to find out who’s at the top of their game.
Which markets do you see having the most potential?
The markets are relatively healthy on the fundamentals. It’s really about submarket locations and specific opportunities that exist within the submarkets as opposed to blanket-brushing the larger metropolitan areas. With that said, Seattle, Portland, Los Angeles, and San Diego we think are all strong. Then, Phoenix, Dallas, Denver, Atlanta, Nashville, South Florida, and Boston are the ones I’d call out of our portfolio that have the most opportunity.
Where are you starting to see concessions?
In the Pacific Northwest and the Atlanta markets, we’re seeing one month free. In Phoenix, we’re seeing one to one and a half months. One and a half is trending in the Scottsdale market, in particular, because it’s had an unusual amount of supply recently. In the central markets, there’s a fairly good disparity.
Dallas is seeing one month free, but in Houston you could see two to two and a half months free. We made a pretty big bet in Texas relative to our development plays, so that’s a market that’s feeling soft to us. Long term, we think it’s going to be good, but right now it feels soft.
We’ve heard some mixed commentary on Denver. Some are really positive and others feel the fever has broken. Where do you sit?
We’ve been hearing about Denver for about three or four years, that the market is overheated. We’ve built a couple of projects there and the leasing velocity has been strong. The overall performance on our portfolios has been good. Generally speaking, the fundamentals of what make apartments really strong right now is the demographics we’re seeing with millennials and renters by choice because of lifestyle choices. Denver is one of the most predominant places in the country for that lifestyle dynamic. You have to be measured looking at the future, but what we’re seeing today, based on operational fundamentals and lease-up activity, [is that] Denver has remained very strong.
Property management has done well this cycle with the onslaught of new product coming to market. As development slows down, how are you preparing for potentially fewer opportunities for new business?
I still think you’re going to see a fairly aggressive [level] of inventory come in in 2017. It’ll probably tail off in 2018 by the first or second quarter. Even in that scenario, I just don’t see it having the same level of drop-off that we saw in 2007 or 2008.
From a management standpoint, it’s not equal to the opportunity that you’re seeing in terms of the inventory that’s been so strong. There’s a strong opportunity, because there’s been so much new development that if you don’t have a strong operator who can execute, then you’re going to get yourself in trouble when the market retracts. There will be lots of opportunity inside of that arena, presuming you’ve got relationships throughout the country with different ownership groups who may be seeing some stress in their capacity of leasing up or operating these deals and are looking for a top-tier provider who can actually drive to the yield they were trying to get initially.
Next: Mike Schall, CEO of Essex Property Trust