Marcus & Millichap

New Haven Multifamily Investment Forecast

New Haven-Fairfield County, Second Quarter 2016

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New Haven-Fairfield Rental Demand Spurs Suburban Investments

The New Haven-Fairfield rental market is driven by a diverse mix of housing demands, with the greatest concentration of renters choosing to live along the I-95 corridor. While the metro’s median income is enough to support the purchase of a median-priced home, the large downpayment required and transitional population will likely keep many in the renter pool for a long duration. In west Fairfield County, a sizable portion of demand is from Manhattan commuters who are attracted to the area’s affordability compared with New York City rents. As employment growth continues to escalate in the city, the increasing demand from commuters who desire to live in the Stamford/Norwalk submarket has enticed developers to concentrate the bulk of their building efforts here and its suburban areas. Expanding supply is applying pressure on occupancy rates as well as net effective rent growth as concessions remain prevalent in the Class A market. Traveling farther northeast on I-95 to New Haven, numerous colleges and universities as well as steady job gains are supporting construction activity to fulfill housing needs. Measured additions to the New Haven-Fairfield County multifamily sector that meet a desire for relatively affordable rental housing compared with New York City will keep vacancy compressed, allowing modest rent growth and contributing to revenue increases.

The metro’s multifamily assets will remain in favor with investors this year as yields for well-operating properties are higher than what is found in nearby areas. Class C complexes, the most commonly traded, have initial yields in the high-6 to high-7 percent range while Class A properties can drop to the low-5 percent to low-6 percent territory. A limited number of assets available in New Haven and Stamford have buyers increasingly looking to suburban areas of the metro. As developers bring more properties to market over the next year, competition among assets of similar quality may begin to rise, particularly in Stamford/Norwalk. Investors in search of apartment complexes in the $1 million to $10 million range will find attractive listings in the submarkets of Bridgeport/Danbury and Waterbury/Meriden/Hamden; assets in these parts of the metro on average have a price per unit far below the metrowide average. Leveraged yields continue to be the most compelling available in all classes from Northern New Jersey to Boston.

2016 Multifamily Forecast

Employment: After creating 5,000 jobs in 2015, New Haven-Fairfield County employers are set to add 10,500 individuals to the local workforce this year, a 1.3 percent annual increase to total employment.

Construction: This year developers will add 2,100 multifamily units to the metro, a reduction from the 3,550 apartments that were delivered in 2015. Builders are focusing on the Stamford/Norwalk submarket with increasing interest in the area of Bridgeport/Danbury.

Vacancy: This year moderate development and steady demand for rental housing will keep vacancy at 3.4 percent, on par with the end of 2015. Net absorption is expected to total just over 2,000 units in 2016.

Rents: Market demand for housing will create upward pressure on rent this year, advancing average effective rent 1.6 percent to $1,635 per month. In 2015, effective rent closed the year at $1,609 per month, an 18.3 percent pace of growth since 2011.

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