Low apartment vacancies and increasing rents are improving the market for the construction of new multifamily complexes, such as Fountainhouse in Sparks. Silverwing Development is constructing the complex, which will add 236 condo-style apartments to the area's inventory.
Apartment rents in Reno are climbing faster than most other cities in the country.
According to a report released Feb. 10 by apartment search startup ABODO, rents for multifamily units in Reno climbed 12.3 percent during the first month of this year.
Only Milwaukee, Wis., and Orlando, Fla., had steeper increases at 13 percent.
The actual average rent in Reno was still among the lowest in metropolitan areas, with a January to February 2016 increase from $667 to $749 per month for a one-bedroom apartment. Milwaukee ended the period at $851 and Orlando at $1,024.
Nevada’s largest city saw the second largest decline in rents for the January to February period. Las Vegas rents decreased 10.9 percent, just under San Jose, which was down 11.2 percent. Las Vegas rents ended at $1,000. In San Jose, they dropped to $2,687.
Reno’s rent increases are being fueled by a tight vacancy rate, 2.9 percent at the end of 2015, according to CBRE’s fourth quarter report.
“The large rent increase in Reno could result from a number of issues,” Michael Taus, vice president of growth at ABODO, said in an email interview. “Some industry experts have suggested that landlords are feeling pressured because of increased demand for units while inventory is low. The U.S. rental market saw historically low levels during the mortgage finance boom and has been steadily shifting to historical norms since the mortgage bust. This boom-bust cycle also impacted new apartment starts. With homeownership rates falling, it makes sense for landlords to continue to raise pricing on their rental units, especially in markets with tighter inventory.”
Home ownership has declined nationally to a current rate of 63.8 percent after peaking at 69.2 percent in 2004, according to U.S. Census Bureau data. Green Street Advisors’ forecasters expect homeownership could drop to 62.5 percent.
Adding to the apartment housing pressure is the number of older residents who lost their homes during the Great Recession and can’t or don’t want to buy again, plus recent graduates saddled with significant college debt. According the ABODO report, the average student debt load nationwide for recent graduates has now surpassed $30,000.
“Reno, specifically, is following a trend that analysts and industry experts have seen in many U.S. cities,” Taus said. “Young adults either can’t afford to buy a home or they don’t want to be bothered with the hassle of owning one. This has led to more demand for rentals and an increase in price.”
While bad news for renters, rising rents are good news for investors.
Rising apartment rents make the Reno market attractive for investors.
“The (Reno) market has drawn attention from investors all over the country, although institutional buyers out of California continue to be the metro’s predominant customer,” according to a report from Marcus & Millichap. “Yield-seeking investors have turned to Reno and other tertiary markets in pursuit of higher first-year returns, with cap rates in blue chip metros compressed to levels that don’t attract cash-flow oriented buyers.”
On Feb. 4, San Diego-based Sunroad Enterprises, in partnership with Loma Linda University Endowment Fund, closed on the purchase of Bristol Bay Apartments in at 5300 South Los Altos in Sparks. The 264-unit Class-A apartment complex built in 2003 sold for $35.5 million. In 2004, the complex sold for $21 million.
In November, the nearby Canyon Vista Apartments at 5200 Los Altos, with 256 apartments, sold for $31.8 million to Sacramento-based Oakmont Properties.
Developers are also responding. Currently, 970 units are under construction in Reno and Sparks with another 3,797 in various stages of planning.
In the CBRE fourth quarter 2015 report, Aiman Noursoultanova, senior vice president, said “our area’s projected housing needs (as estimated by EDAWN’s EPIC Report) are still outpacing available supply, which bodes well for continued low vacancy and growing rents. … These 4,767 total units still fall short of the (plus or minus) 37,500 new total housing units (including single family) needed by 2020. While some of this housing void will be filled by new residential developments in the works, it certainly appears as though it’s not too late to build in Northern Nevada, if one could find available land. And the jobs continue to come.”
