Cranes are suddenly appearing in a lot more markets around the country than just Washington, D.C. As local media sees signs of life in apartments, stories begin circulate about new projects and ultimately, about supply coming online. And in some places, oversupply concerns are already starting to circulate.
Here are three cities on the initial watchlist (there will be more to come):
-Washington, D.C.: This is the easy one (especially because I live here). For a couple of years, critics have been warning of a flood of supply in the nation’s capital. Now it appears to be happening. With strong demand for apartments, more developers migrated to the D.C. area when construction shut down in the rest of the country. These newcomers, along with local veterans, have broken ground on an astonishing 14,415 units between March of 2011 and March, 2012, according to Alexandria, Va.-based research firm Delta Associates.Additionally, 11,308 units will be delivered and 8,500 of those coming will be coming online by the end of September, says Grant Montgomery, vice president and apartment practice director at Delta. These are in the Mt. Vernon Triangle/NOMA area of Washington and Silver Spring, Md.
The net result of all of this? Delta says the top rental market in the country a couple of years ago will see rent declines. “We are forecasting by the end of 2012 that at the metro level, there will be slight rent declines,” Montgomery says.
-Phoenix: On the surface, a Phoenix oversupply list is surprising. Just a few years ago, it was ground zero for distress around the country. But times have changed. One report has more than 20 properties under construction in the market. And just yesterday, two new projects were approved in Northeast Phoenix, according to The Arizona Republic.
“It happens so quickly,” says Nick Ingle, director of capital markets for the Phoenix office Hendricks and Partners. “I think the overall market can sustain the number of units that we’re delivering, if they are all constructed. However we’re delivering them primarily at three intersections and they’re all triple class A brands.” Especially since, Ingle says, 12 properties are potentially coming online near Scottsdale Fashion Square Mall, by Kierland Commons and near The Biltmore in Phoenix. “They’re great locations and these markets tend to be the more moneyed, which means it’s the renter by choice.”
-Seattle: The amount of building in Seattle is hitting historic highs. The Bend Bulletin in Oregon reports (http://www.bendbulletin.com/article/20120410/NEWS0107/204100357/) the Emerald City is seeing its biggest apartment construction boom in a quarter century. The paper uses the O'Connor Consulting Group figure that says 10,000 apartments are on the way in Washington state's King and Snohomish counties. Three-quarters of those units are in Seattle and 4,619 of those units are in (or near) downtown. “We’ve looked at the market dynamics there,” Ingle said. “We feel like the market is strong enough to absorb all of those. There are a lot of projects and there is heavy investment in high-rise projects in the CBD.”Expansion by Amazon, Nordstrom, and Boeing helped pull the market out of the doldrums. Just a few years ago it was regarded as the worst rental market in the country.
Think fears in these markets are overblown? Let us know. Also tell us if you have more markets to nominate for future versions of “The Overdevelopment Watch.” Leave them in the comments section and we’ll follow up.