Reno-Sparks multifamily housing demand remains strong heading into winter
Special to the NNBW
EDITOR'S NOTE: This is the third in a 6-part series of stories in the NNBW's newest quarterly edition of the Northern Nevada Real Estate Journal, which looks at various statistics, trends, project updates and more regarding commercial real estate across greater Reno-Sparks. Look for more stories later in the week at nnbw.com, or check out the Wednesday, Oct. 28, print edition of the NNBW.
RENO, Nev. — Sustained demand for multifamily housing units, even during the COVID-19 economic downturn, has buoyed Northern Nevada’s apartment industry.
Vacancy and rental rates actually increased in the second quarter of 2020, real estate appraisal firm Johnson Perkins Griffin reported. Vacancy stood at 3.32 percent, while the average rent across all property types ticked up to just under $1,370.
Aiman Noursoultanova, senior vice president of investment properties group with the Reno office of CBRE, says that after industrial, multifamily has been the most popular asset class of commercial real estate during the pandemic.
“That has to do with sustained and strong demand for multifamily units from tenants, even during the downturn,” Noursoultanova said. “Rents continue to do extremely well — we posted record rent while vacancy went down and delivery increased.”
Demand is expected to remain strong throughout the remainder of the year across all property types, from the many new Class A luxury units being delivered to older, more affordable Class B workforce housing, Noursoultanova added.
“Ultimately, properties are doing well,” she said. “The only cloud we are seeing from various owners is a little softening on rent collections among workforce housing properties, and that’s because of the federal stimulus waning.”
That sub-sector of the multifamily housing market may make some additional stumbles as additional stimulus negotiations were nixed until after the presidential election in November. Regardless, the apartment industry in Northern Nevada still stands on sturdy legs.
‘We inherited a very strong market’
Meanwhile, construction of new multifamily housing continues nearly unabated, with numerous Class A offerings and a number of new market-rate student-housing projects adding thousands of doors to the market.
Demand also continues to be exceptionally strong at market-rate student properties (private student-centric properties located off campus) because of limitations on occupancy in the University of Nevada, Reno dorms.
“Pre-COVID, we inherited a very strong market,” Noursoultanova said. “Job growth was booming, and with continued tenant demand and strong absorption among new properties, developers will continue to build.”
According to Johnson Perkins Griffin, there are more than 4,000 apartment units currently under construction in Northern Nevada, with another 5,000 units in the planning stages. The largest project, The Lakes at Sky Vista, will add 768 units to the North Valleys submarket.
However, the real estate appraisal firm expects some short-term delays in the development pipeline, as well as an uptick in vacancy once moratoriums on evictions are lifted.
And the potential for a regional financial crisis due to lack of additional fiscal relief from the federal government could further muddy the waters. The $600 boost in federal unemployment benefits this spring helped thousands of laid-off service and hospitality workers make their summertime rents, but for most those funds have long disappeared in the rearview.
The fourth quarter and first half of 2021 will tell just how deeply that financial pain will be felt across the multifamily market. One likely scenario is that renters step down an asset class in order to save money, Noursoultanova said. That move would mirror moves made during the last recession, when cash-strapped renters shifted to B-class properties to better manage their monthly spending.
“If you look at asset types that did well during the previous recession, B-type assets outperformed both As and Cs,” she added. “They might be older properties, but they offer great amenities and more reasonable price points, and people will be planning for that.”
‘We have the jobs, we are not California’
While the third quarter of the year is usually hot for sale of multifamily properties, volume has been low with only a few large-scale transactions taking place.
Capital is still chasing deals in the Reno-Sparks market, Noursoultanova said, but owners are hesitant to make any moves during uncertain financial times.
Ben Galles, vice president of LOGIC Commercial Real Estate, said that most multifamily deals fell off the radar when the pandemic hit, but small-scale deals are coming back together.
“On April 1, my whole pipeline got wiped out, but every single one of those deals I put back together since then,” Galles said. “They either got resurrected with the same buyer or a new buyer.”
The largest sale of August was 1680 Sky Mountain Drive. The 184-unit property sold for $40 million, or $217,391 per door, LOGIC reports.
Other notable sales included 1830 Kirman Ave., which sold 50 units for $3.5 million at $71,000 per door, and 400 Willow Way in Fernley, which sold 48 units for $8.4 million, or $175,000 per door.
Additionally, Colliers International announced in late October its Reno and San Francisco offices helped facilitated the $64 million sale of the 300-unit Silver Ridge Apartments in West Reno to a partnership among California-based companies IDEAL Capital Group and Tilden Properties; escrow closed Sept. 30.
Galles said many renters likely will postpone moving this winter — historically a period of higher vacancy — due to the pandemic. Sales during that time, meanwhile, could prove to be the strongest of the year.
“Whatever is left to come, Northern Nevada is going to handle it about as well as any other area,” Galles said. “We have the jobs, we are not California, we are really diversified, and we still have a high quality of life.”
The average rental rate of $1,369 in the second quarter was a record for Reno-Sparks. Despite COVID-related shutdowns, rents ticked up $28 from the previous quarter. However, Johnson Perkins Griffin expects rental rates to dip over the next few quarters if there’s a rise in vacancy.
Construction could begin next year and require about 500 to 600 workers, with a permanent workforce starting at 150 to 200 people with potential to expand.