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Report: Apartment gains could cool in 2013

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Indianapolis-area apartment occupancy and rent rates should continue to grow in 2013, albeit at a slower pace, as developers finish more units and the single-family market picks up steam, the locally based apartment brokerage Tikijian Associates predicts in a new report.

Multifamily remains the "preferred" investment real estate for owners and lenders, a position the sector grabbed after years of stagnant rents and occupancy during the housing boom. Developers have raced to add new apartments despite slow employment growth and an unsteady economy.

The 2,874 units completed in 2012 are the most since 1999, and Tikijian projects developers will add another 2,600 units in 2013.

"The dynamics that have driven apartments are still strong," Tikijian principal George Tikijian said in an interview. "In all likelihood, there'll be a little more competition from single-family buying, and more new apartments delivered—enough to slow down growth a bit."

Rents increased an average of 2.2 percent in 2012, and Indianapolis-area apartments achieved 91.7 percent occupancy, up from 91.4 percent in 2011 and the highest figure in the 2000s, according to Tikijian Associates data.

Downtown led the way with a record occupancy rate of 95.7 percent, up from 94.4 percent, as most properties are "essentially full," Tikijian said. Rents downtown grew an impressive 4.7 percent, followed by the north submarket with 2.1 percent.

Tikijian predicts rent growth for 2013 between 1.5 percent and 2 percent for the overall market, with up to 3 percent for certain higher-end properties and faster growing submarkets such as downtown. He sees 2013 occupancy at 92.1 percent.

Fellow apartment broker Steve LaMotte Jr., a CBRE senior vice president who leads the firm's Indianapolis-Cincinnati Multi-Housing Group, is a bit more optimistic on rent growth.

He's projecting a 3-percent bump in rents for the market in 2013, after a 3.4-percent gain by his calculations in 2012.

LaMotte's research shows Indianapolis-area apartments are 93.4percent occupied in 2012, an "unprecedented" 2-percentage-point gain over 2011. He sees 2013 occupancy rates inching up to 93.5 percent. His projects on how many new apartments developers will add are similar to Tikijian's.

LaMotte noted the city's top 50 properties are 95.1-percent occupied. He remains bullish on the hottest markets, including downtown Indianapolis, Carmel and the 86th Street and Keystone Avenue area.

"I think we're going to test the demand in each of those submarkets—we're building more units in those submarkets than I have seen in my career," LaMotte said. "But when you look at who's developing this product, you've got experienced people. With all of the momentum in multfamily, I think there's enough demand to go around."

Tikijian doesn't expect downtown will add as many units in 2013, since projects like 451 Market (Milhaus) and Axis at Block 400 (Flaherty & Collins Properties) won't likely come on line until late 2013 or early 2014.

Upscale units have achieved the most impressive gains. Class A apartment rents hit a record high of 94 cents per square foot in 2012, up from 90 cents in 2011, primarily driven by the newest downtown and suburban north projects, Tikijian said. The highest of the high-end, including CityWay downtown and The Residences at Keystone at the Crossing, are renting for between $1.10 and $1.50 per square foot.

The strong occupancy, though, isn't limited to the newest properties. Tikijian noted that a 16-building Zender Properties portfolio of historic apartment buildings is 92-percent occupied, a record high for buildings that spent many years with occupancy rates in the range of 80 percent.

Nationally, apartment occupancy has risen for nine consecutive quarters, to 95.3 percent, and rents are at record highs, according to data from Reis Inc. A handful of factors have driven the gains, including higher credit standards for home buyers, economic uncertainty, a growing number of people renting as a lifestyle choice, and continuing growth in the "under 30" and Hispanic populations, which are historically strong rental categories.

All nine Indiana cities Tikijian Associates tracks saw rent and occupancy growth in 2012, but Bloomington led the way. The home of Indiana University achieved the highest rent-per-unit, $868, compared with $703 for Indianapolis, and an occupancy rate of 96 percent. There's some consolation for Purdue fans, though, as Lafayette and West Lafayette achieved the state's highest rent growth, 4.1 percent.

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  1. The east side does have potential...and I have always thought Washington Scare should become an outlet mall. Anyone remember how popular Eastgate was? Well, Indy has no outlet malls, we have to go to Edinburgh for the deep discounts and I don't understand why. Jim is right. We need a few good eastsiders interested in actually making some noise and trying to change the commerce, culture and stereotypes of the East side. Irvington is very progressive and making great strides, why can't the far east side ride on their coat tails to make some changes?

  2. Boston.com has an article from 2010 where they talk about how Interactions moved to Massachusetts in the year prior. http://www.boston.com/business/technology/innoeco/2010/07/interactions_banks_63_million.html The article includes a link back to that Inside Indiana Business press release I linked to earlier, snarkily noting, "Guess this 2006 plan to create 200-plus new jobs in Indiana didn't exactly work out."

  3. I live on the east side and I have read all your comments. a local paper just did an article on Washington square mall with just as many comments and concerns. I am not sure if they are still around, but there was an east side coalition with good intentions to do good things on the east side. And there is a facebook post that called my eastside indy with many old members of the eastside who voice concerns about the east side of the city. We need to come together and not just complain and moan, but come up with actual concrete solutions, because what Dal said is very very true- the eastside could be a goldmine in the right hands. But if anyone is going damn, and change things, it is us eastside residents

  4. Please go back re-read your economics text book and the fine print on the February 2014 CBO report. A minimum wage increase has never resulted in a net job loss...

  5. The GOP at the Statehouse is more interested in PR to keep their majority, than using it to get anything good actually done. The State continues its downward spiral.

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