New Mexico….Multi-family Housing update 2015
Multi-family Housing is coming of age in New Mexico and the Millennial Generation is spurring the growth. The old adage of “location, location, location” is ever present as the placement of a property in relation to cultural, educational, entertainment and natural amenities becomes a major factor in the value of the property. The ability to walk and bike to social amenities (restaurants, theaters, schools, etc) is, and will continue to be, very high on the list of importance for members of the Millennial Generation in New Mexico. There is not only a distinguishable difference in occupancy rates for units scoring high on the Millennial Generation’s want list, the Income for these units is between 20% and 24% higher than those with lower scores.
While newly constructed and refurbished multi-housing units are often in the sweet-spot of appeal for Millennials, all of New Mexico is experiencing high occupancy rates in all strata of the multi-family market. This push on availability is fueling an environment fostering the continuance of increasing rents and new construction. As in all sectors of real estate, the sale of multi-family properties was deeply affected by the recession beginning in 2006. A market shift in 2013 has allowed the Multi-family market to regain its footing with a two- to three-times increase in sales during 2014. Cap Rates for commercial real estate in our market aggregate between 8% and 9%, while Cap Rates for Multi-family properties are trending to below 7%. Low Vacancy Rates and availability of product are the prime factors in this compression of the Cap Rate.
New construction in Multi-family is trending heavily to two-bedroom units, with an average of 55% of the new units being built as two-bedroom, 20% as studios/one-bedroom and 25% as three-bedroom. All sizes of newly constructed units are garnering the higher rents previously mentioned. A survey of new complexes indicates asking rents hovering between $1.30 and $1.60 per square foot.
The vast majority of existing Multi-family property is 20 to 40 years old. Rents per square foot for this existing inventory of two and three bedroom units are comparable at approximately $0.80 to $1.20 per square foot. While the actual monthly rent is lower for studio and one-bedroom units, the rate per square foot tends to be 20% to 40% higher.
As with any region, continued growth is dependent upon job stability and job creation. New Mexico is poised for both. As New Mexico follows the nation out of the recession, we find ourselves looking like the “belle of the ball” to out-of-state investors searching for a solid investment at a good price.
Article by Debbie Harms, CCIM, SIOR, CPM
Featured in Western Real Estate Business May 2015 – Volume 12, Issue 9