Providence, R.I., is having a good year.
With limited additions to rental supply and favorable regional economic trends, apartment fundamentals in the Providence metropolitan region have been strong in 2007. Additional apartment demand has been spurred by positive economic trends in the area, including solid job growth and encouraging demographic shifts. Despite a slight decline in single-family home prices this year, apartment owners are expected to get a boost from the area's high-priced housing market, as a lack of affordable alternatives stimulates the local renter pool.
MONEY IN THE MARKET The population is expected to continue growing over the next several years, with a total increase over its current 1.2 million residents of less than 1 percent through 2011. Although projected population growth will be reserved, certain age groups are expecting above-average gains, which is promising. The proximity to Brown University, an Ivy League institution that enrolls approximately 7,700 students annually, creates an ongoing boost to the local rental market and attracts recent graduates and young adults to the area.
For starters, the 25- to 29-year-old age cohort is expected to expand 10 percent by 2011—a boon to the local market thanks to this demographic's tendency to rent rather than buy. Meanwhile, the 60- to 74-year-old age group is expected to grow more than 27 percent during the same period. A surge in the retirement-age population will create more health care, leisure, and hospitality jobs whose corresponding wages can prove challenging for homeownership, thus further expanding the local renter pool.
Additionally, these age groups are trending toward downsizing and worry-free housing that requires less effort to maintain, often looking toward rental housing for their retirement and even second home needs.
At approximately $50,000 per year, the area's median household income further supports the demand for local apartments. The median home price hit nearly $300,000 in the first quarter of 2007, while the median price for a condominium approached the $250,000 mark.
This may appear low compared to other nearby East Coast metros, but these price levels preclude a substantial portion of the Providence metro from homeownership: The median income falls nearly $20,000 short of qualifying for the area's median-priced home and $10,000 short of qualifying for a median-priced condominium. Moreover, nearly 40 percent of local households have a median income of less than $35,000 annually, well below the level needed to qualify for a median-priced home.
Employment trends in the metro Providence area have been favorable thus far in 2007. The unemployment rate for the metro fell from 6.1 percent at the beginning of the year to 4.8 percent in May, while the state's unemployment rate declined to 4.7 percent in June, signaling continued positive employment trends in recent months.
In addition, the state has introduced 5,400 net payrolls over the last 12 months, and more than 20,000 jobs have been added since June 2003. Income growth this year has been fueled by expansion in the professional and business services sector, which added 2,200 jobs from the 12-month period ending this last June.
Increased development was the primary driver behind rising vacancy rates and slower rent growth in 2006, with apartment vacancy climbing to 10.3 percent.