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Residential Forecast 2009 Cindy Clare, CPM President, Kettler Management January 27, 2009
MARKET FOR 2009 • What a difference a year makes! • Impact of the decline in the economy • Impact of the election • How will the credit crunch impact the apartment industry?
ECONOMY • The implosion of the financial markets impacted everyone • Renters are being more cautious, and much more price sensitive • Renters are taking smaller units, but not doubling up “yet” • Silver Lining – the bailout may bring more jobs to Washington
ELECTION • The change in administration brought “hope” to the nation • Immediate increase in leasing after the election • Will it continue?
WHAT DOES THIS MEAN FOR RENTALS? • Slower absorption pace at lease-up properties (average 15 per month) • Rental concessions will continue and will increase in 2009 • Increased vacancy in both product types • Limited to no rent growth in strong sub-markets, rent reductions in other sub-markets
2008 RENTAL RESULTS • Vacancy increased in VA, MD, and DC • Class A vacancy increased to 4. 4% • Small increase in rents of 1. 3%, decrease in high-rise rents • Class A absorption dropped from 17 to 15 units per month • There are currently 51 apartment communities in lease-up in the Washington Metropolitan Region • Concessions continue to increase; Class A 5. 7%
2008 RENTAL RESULTS • Supply beginning to stabilize as reversions slow down and new construction is delayed • Rentals in No. VA were up 1. 5% • Rentals in Rockville and Bethesda, MD were down 2. 4%. However, rentals in Silver Spring, MD were up 5. 1% • Rentals in DC were down 0. 7% • Shadow market is not having as much impact in the outer suburbs
2009 RENTAL FORECAST – No. VA • Concessions will continue and will increase in all submarkets. Additional spreading of concessions as absorption slows • Rent growth is unlikely in any product type. Although there may be an opportunity to raise rents on particular unit types (smaller units) • Vacancy will edge up everywhere • Location and quality will be key for new product. Unique features will become increasingly important • Properties located near mass transit will continue to hold up better than other product • Pipeline may continue to be reduced as new construction is delayed due to lack of financing • Turnover should slow as buyers will need more money down to buy. However, those that have cash may see 2009 as an “opportunity”
2009 RENTAL FORECAST - DC • 25% increase in apartment supply in 2008 will impact occupancy in 2009 • There will not be rent growth • Reversions will continue to impact the market and could affect absorption depending on timing • Vacancy will increase slightly • Concessions will continue to increase as lease-ups are introduced into the market
2009 RENTAL FORECAST - MD • Concessions will increase and spreading of concessions will continue as absorption slows • Rents will be flat • Properties near mass transit and close in locations will do better than outlying suburbs • Vacancy will continue to increase
2009 SUB-MARKET RECAP • Near-term pipeline is imposing but upon closer review some markets may perform better than others • Currently Washington, D. C. itself is saturated with failed condo projects and new apartments - Poor locations are forced to offer steep concessions, dragging down all new communities who are forced to match - Concessions and price cuts are bringing some communities inline with new product in Arlington—Ballpark vs. Pentagon City • Most Fairfax County supply will be absorbed by the first half of 2010 • Arlington has been hard hit by condo reversions however virtually all of these projects will be leased up by early 2009 • Which will be followed by another 2, 900 units delivering over the next 18 months—however most new deliveries are in secondary locations, many without Metro
ITEMS TO WATCH IN 2009 • Increase in delinquencies particularly in the B market - Hold fast on credit standards in order to avoid the pitfalls of the “for sale” market • “Let’s make a Deal” as absorption slows - Focus on retention of existing residents
SUMMARY • 2009 will be a slow market, but not a sharp decline • The Washington Metro market will continue to be desirable due to a stronger economy than the majority of the country • While the market will be declining from our standpoint, it is still much stronger than many areas of the country