A tight market

Apartment dwellers in Reno and Sparks will continue to see rent increases probably on the order of 4 to 5 percent this year as vacant units remain scarce.

But although demand for apartments remains strong, it's an open question how many of the nearly 7,000 apartment units proposed for the region will be built any time soon.

Dewey Struble, an investments specialist with the commercial real estate firm Sperry Van Ness, says apartments remain full because the median sales price of a home in the area about $300,000 keeps homeownership out of the reach of thousands of working families.

Adding to the tight supply of apartments is the conversion in recent months of about 700 apartments that were sold as condominiums, says an analysis by CB Richard Ellis.

In fact, Len Ramos and Alex Mellinger of CB Richard Ellis note that the loss of 700 apartments in a year in which only big complexes came on line means that the region had fewer apartments at the end of the year than it had at the start of 2006.

The new 344-unit complex, The Horizons at South Meadows, filled up so quickly that it was 96 percent occupied by last month.

With the tightening supply, Todd Blonsley of the commercial real estate firm Marcus & Millichap projects that rents will increase by 3.5 percent this year. Struble foresees a 4.25 percent increase, and the CB Richard Ellis team forecasts a 5 percent increase. Last year, apartment rents were up an average of about 4.5 percent.

Rents currently average $873 ranging from an average of $549 for a studio to $1,100 for a three-bedroom, two-bath unit.

Blonsley, too, notes that tenants aren't getting many of the concessions such as a month's free rent or free cable television that were common when vacancy rates were higher.

But the higher rents may not be enough to justify construction of new apartment units.

"Rising land and material costs, coupled with the need to purchase expensive water rights, are serious impediments to the development and construction of apartment units," the CB Richard Ellis staff said in a recent report.

Another worry for apartment owners, Struble says, is the possibility that many of the condominiums currently under development in downtown and elsewhere might end up as rentals effectively increasing the pool of apartments in the region.

"I think we're a little aggressive in the new condominium market," Struble says.

And he notes a statistical oddity during the fourth quarter last year that might cause some worries: The vacancy rate rose from 3 percent at the end of the third quarter to 4.7 percent at the end of the fourth quarter.

One possible reason, Struble says, is that the slowing market for new homes means that some construction workers who previously had been employed year-round were laid off and left the area this winter.

If investors decide the time is right for more apartment construction, plenty of projects are in the pipeline.

The Small Business Development center at the University of Nevada, Reno, says 22 projects totaling nearly 6,900 apartment units have been approved for construction, and another 1,100 units have been proposed but aren't yet in the formal planning process.

Of the units that have local officials' OK, nearly 75 percent of them are in Sparks, Struble and Blonsley say in a new report. The total includes 4,000 units proposed at Kiley Ranch North and Pioneer Meadows, 700 units at Miramonte and 400 units at Sparks Marina. In addition, the developer of Copper Canyon in the hills just east of Sparks is kicking around plans for another 900 units.

At least one major regional developer, meanwhile, is taking a renewed look at large-scale apartment development in the Reno-Sparks area.