Marcus & Millichap

Reno Apartment Research Report

Reno-Sparks Metro Area, Second Quarter 2016

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Corporate Growth Providing Steady Stream of Renters

The Reno apartment market continues to benefit from the robust local economy and steady population growth, driving improvements in vacancy and rents. A favorable tax structure and low cost of living have encouraged many corporations to expand and relocate into the metro. The announcement of Tesla’s Gigafactory in 2014 was a major step in helping Reno establish itself as a tech destination and others are following its lead. These firms look to draw talent out of the University of Nevada, Reno, which recently announced plans for expansion. Ample employment opportunities have helped retain new graduates, supplying the local economy with a growing cohort of highly educated young people. The economic boom of the past few years has left the metro facing a housing shortage. Prices in the single-family market have climbed a staggering 75 percent in the last five years, pushing many residents into the renter pool. Multifamily construction has yet to alleviate the pent-up demand with vacancy falling to rock-bottom levels. Reno has one of the lowest vacancy rates in the country and the rate is still trending downward, placing substantial upward pressure on rent levels. The metrowide average rent will register another year of strong growth with lease rates climbing to the highest point on record.

Ultra-low vacancy rates and consistent rent appreciation is stoking demand in the Reno apartment market. The primary factor driving trade activity continues to be out-of-town liquidity chasing available yield. Intense cap rate compression in the California markets has encouraged many investors to turn to Reno as a higher-yielding alternative. Although cap rate differential is a strong draw, robust property operations and a positive economic outlook are helping the metro turn the corner to becoming a standalone investment market. The main drag on future deal flow continues to be a lack of available listings with buyers heavily outnumbering sellers. This has created a competitive bidding environment, causing valuations to push beyond pre-recession levels. Cap rates have subsequently declined with Class A assets trading in the low-5 percent range on average. As a result, many property owners have moved up their investment timeline to capture record pricing.

2016 Multifamily Forecast

Employment: Organizations will expand payrolls 3.8 percent in 2016 as annual job gains reach 8,140 hires. Last year, employment growth reached 4.0 percent led by strong gains among office-using firms.

Construction: Annual multifamily development will reach 670 units this year, a slight dip from 2015 when 710 apartments were brought to market.

Vacancy: Strong renter demand amid a slowdown in construction will result in a vacancy contraction this year. Metrowide vacancy will constrict 20 basis points to 2.4 percent in 2016 on the back of more than 1,100 units of net absorption. Last year, vacancy fell 60 basis points.

Rents: The average effective rent will jump 6.8 percent this year, reaching $945 per month. Reno apartment owners registered rent growth of 5.7 percent in 2015.

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