The National Association of Real Estate Investment Trusts (“NAREIT”) held its REIT World conference this week in Dallas, Texas. According to published reports, two major points were made at the conference. First, existing multi-family apartment housing is doing well. Thomas Toomey, president and CEO of UDR Inc., which owns stakes in 62,000 apartments, stated in an article for the Wall Street Journal that one of the major factors favoring apartment living over suburban single-family housing is that the millennial generation (people born between 1980 and 1995) prefer to live in apartments close to city centers, where jobs and nightlife are closer. Toomey said that their apartments are over 96% occupied, and that as a result, rents may be increasing in the near term.
Also, there doesn’t seem to be a big push to build new apartment complexes, so the existing ones, which are being refurbished, are doing very well. According to the real estate research company Reis Inc., the national apartment vacancy rate is approximately 5.6% at the end of third quarter 2011, down from 5.9% for the second quarter, and the lowest since 2006. David Neithercut, president and CEO of Equity Residential, a REIT that owns stakes in 119,000 apartments said that because of the depressed housing market, people are staying in apartments rather than moving out to purchase a first home. He also said that he does not believe that apartment occupancy rates are being driven by former home-owners who have been forced out of their homes. It seems that most of the people moving out of foreclosed homes are renting other single-family homes, not moving into apartments.
The second major point discussed at the NAREIT conference was the surprising fact that the build-to-suit sector is picking up. The increase in build-to-suits is not driven by lack of office or industrial space, but because the space that is out there doesn’t suit the demands of the tenants. In an article for GlobeSt.com, William Hankowsky, chairman, president and CEO of Liberty Property Trust described a build-to-suit property that Liberty Property Trust is developing for GlaxoSmithKline as a headquarters in downtown Philadelphia. The 250,000 square foot space, which was completed in 1999, will be open space, with areas for group collaboration, and with no corner offices. This example mirrors the demand that others are seeing for more flexible workspace, better amenities, access to better technology, and different utilization of office space as more and more workers telecommute or work remotely. Tenants are also demanding energy efficiencies and sustainability for their spaces, making LEED certification more necessary in order to attract prospective tenants.
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