SF Markets Stabilizing as Demand is Down and Supply is Up
The apartment market in New York and San Francisco is slowing down, with Equity Residential, the largest publicly traded U.S. multifamily owner, cutting its revenue forecast for the third time this year.
Equity Residential expects revenue growth from properties open at least a year to be 3.5% to 4% in 2016, according to the company’s second-quarter earnings statement Tuesday. The Chicago-based real estate investment trust in late April lowered the upper limit to 5%, then reduced it again in June to 4.5%.
“After five consecutive years of exceptional fundamentals, elevated levels of new supply and slowing growth of higher paying jobs in San Francisco and New York have created headwinds,” Chief Executive Officer David Neithercut said in the statement.
AvalonBay Communities Inc., the second-biggest U.S. apartment REIT, gave renters lease-signing concessions worth $300,000 in the second quarter, four times more than in the same period a year earlier, Chief Operating Officer Sean Breslin said on the company’s earnings call Tuesday. The sweeteners, in the form of free months of rent, were greatest in New York, Northern California and New England.
AvalonBay cut the midpoint of its full-year forecast for same-store revenue growth by 0.4 percentage points. Job growth in the markets where the company owns apartments was also weaker than the company expected in the second quarter, damping demand for rentals in what is usually the busiest leasing period, Breslin said.
“We did not see the same seasonal lift we’ve seen in prior years,” Chief Executive Officer Timothy Naughton said on the call.
In San Francisco, about 5,100 new units, the most in 26 years, are expected to be listed for rent in 2016, data from research firm Reis Inc. show. In Manhattan, 5,675 apartments will be added to the rental inventory, most of it high-end, according to brokerage Citi Habitats.
Rent growth on new leases in New York has been “stubbornly low,” Breslin said. “There’s just not enough high-paying jobs being created to absorb all the new supply.”
Equity Residential shares fell in after-hours trading, losing 3.2% to $67.60 as of 5:25 p.m. New York time. The stock is the worst performer this year in the Bloomberg REIT apartment index, with a 14% decline.
Source: Crain’s New York Business