Friday, September 27, 2013

Why Are Jacksonville Apartments Exceeding Operating Performance Expectations in 2013?

In my last post I described how Jacksonville apartments are exceeding expectations for their operating performance this year. Below we will look at some of the factors driving this better than expected performance. Understanding these factors is critical to making multifamily investment decisions all the way down to the individual property level.

The demand for housing is driven by population growth and the household formation rate among the population. Many of the factors influencing demand are subject to long-term systemic trends. These include, but are not limited to, the age/sex and race/origin composition of the population, marriage/divorce rates, childbearing (in many ways), and life expectancy. The factor most subject to shorter-term cyclical fluctuation is personal incomes and the financial capacity to afford household formation. Of course, if the supply of housing is constrained the household formation rate will be affected; this is not a consideration in Jacksonville at any time in the foreseeable future.

The prime driver of current multifamily performance in Jacksonville is the improving employment market. Jacksonville's MSA unemployment rate for August 2013 was 6.7%, down from 7.0% for July 2013 and 8.6% for August 2012; it’s now below the national and Florida averages. The On Numbers Economic Index evidences broad strength in the local economy (it is an index designed to show the relative economic strength of the 102 major metros with estimated populations exceeding 500,000). As reported by the Jacksonville Business Journal, in July 2013 Jacksonville ranked 42nd rising to 33rd in August and to16th in September; in January it was ranked 98th. With higher employment and resulting higher personal incomes, the household formation rate is increasing improving residential absorption. It is also likely that this economic strength may be increasing population growth through in-migration of job seekers.

Several factors are driving that absorption in the direction of apartments. Much of the employment growth is in renter-type jobs: business and professional services, retail trade, leisure/hospitality, and lately construction. Jacksonville currently has one of the highest foreclosure rates in the country stemming from the previous financial woes, making those households into renters. And rising construction costs as single-family production ramps up along with higher mortgage rates are making owner-occupied housing less affordable as evidenced in the NAHB/Wells Fargo Housing Opportunity Index for Jacksonville falling to 78.4 for 2013Q2 from 85.2 at the end of last year. The same trend is shown nationally in the National Association of Realtors First Time Homebuyers Affordability Index for existing homes over the same period.

The net effect: currently, demand for rental housing in Jacksonville is significantly improving apartment operating performance through much improved effective rental revenue. In my next post we will discuss how apartment performance may be trending in the future.

If you would like to discuss these thoughts in more detail, please contact me:

            Paul B. Hazlett
            Multifamily Investment Advisor
            Coldwell Banker Commercial - Benchmark
            904.281.1990 x8523


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