Rents On Increase In Much Of Area As People Delay Buying
February 18, 2007
By ROBIN STANSBURY, Courant Staff Writer
Strong growth in the apartment market last year is leading to rent increases throughout most of the Hartford region in 2007 - with hikes of as much as 8 percent.
But just how much more you pay this year will depend on where you live.
Landlords say demand - and occupancy rates - for apartment units is strongest in the West Hartford-Farmington Valley area, as well as the Wethersfield-Rocky Hill corridor. There, renters can expect to pay an average of 3 percent to 5 percent more this year, and in some of the best buildings with the best locations, as much as 8 percent.
But demand in the Manchester area, and in the Norwich-New London area, has slowed in recent months, the landlords said, because of an increase in the number of apartments, as well as condominiums.
As a result, monthly rents in those areas will, in most cases, stay flat this year, and in some cases owners are offering a month or two of free rent, or reduced security deposits, to attract new tenants.
"Last year started out with a bang, but then those markets started softening in the later part of 2006 as more product came on line," said Marie Mazzotta, vice president of Konover Residential, which owns almost 3,000 apartment units in Connecticut.
"I think New London and Norwich will have a resurgence in 2007, but I'm not sure about Manchester yet," she said. "I don't see that percolating."
Overall, the apartment rental market has strengthened dramatically during the past 12 months because of a slowdown in the purchase of homes and because there has been little construction of apartment complexes in the area.
Fewer home buyers has meant more renters, and more renters means that occupancy rates in mostparts of the area are increasing.
"In the midst of the housing boom, people moved out of apartments and into houses because interest rates were low and they were able to afford it, and so the apartment market suffered," said Ron Van Winkle, a West Hartford economist. "Now, mortgage rates are rising, costs of houses have risen, so people are holding off on purchases and the apartment market is doing better again."
That is not always the case. The apartment market can mirror the home purchase market. At those times, when one slows, the other slows, as well. Or, in areas with strong population and job growth, a strong home purchase market and a strong apartment rental market can exist side by side.
But in central Connecticut right now, the slowing market is benefiting apartments.
"The apartment market here is a fairly stable market, without significant ups and downs," Van Winkle said. "It should remain that way for the next couple of years."
That stability has led investors to see a lot of strength in the local multifamily market, making the purchase of apartment buildings a good bet for 2007, said housing expert Steve Witten, senior director at Marcus & Millichap Real Estate Investment Brokerage Co.'s National Multi-Housing Group in New Haven.
"It's my honest feeling that the bulk of the apartment sales for 2007 in the state of Connecticut will take place in Hartford County," Witten said. "The perception of the Hartford market is extremely positive. This is a burgeoning or growing market where stability will lead to reasonable appreciation. When you have investors who perceive you have a strong market, that is a good thing."
Witten said the Hartford area is seen as so positive because for many years the market was undervalued, and at the same time development from private investors is finally taking place in the capital city.
"Hartford's time is coming, and people are looking to position themselves in a market where they see excellent growth and appreciation of value," he said.
In his report on the 2006 Connecticut apartment market, Witten said sales of apartment buildings statewide remained healthy, with 5,617 individual apartment units traded in 2006, compared with 5,676 units in 2005. At the same time, average per-unit sales value increased, from $88,368 a unit in 2005 to $122,803 a unit in 2006, a jump of 39 percent.
That does not mean the typical value of an apartment unit increased by 39 percent; it could reflect the sales of higher-priced complexes.
For example, two upscale apartment complexes in Middletown with 518 units sold for $73.2 million, or about $141,000 a unit, in early 2006. And already this year, a newly built 180-unit complex in Meriden sold for $30.2 million, or about $168,000 a unit.
In addition, The Hawthorne at Gillette Ridge, a 246-unit upscale complex on CIGNA's campus in Bloomfield, is now under contract. The sale price is expected to value units at more than $200,000 apiece.
In downtown Hartford, hundreds of upscale apartment units have been built in several projects, including Northland Investment Corp.'s Hartford 21, a 36-story, 262-unit rental tower with full amenities at the site of the old Civic Center mall. It remains to be seen how that market shakes out, although Northland and other developers say their rental plans are on track.
Brokers said one area of weakness is in the development of condominiums. Although the condominium market in the area is still strong - sales of condos in 2006 outpaced sales in 2005 by about 6 percent - demand in recent months has softened, leading some projects to be scrapped. In other cases, developers have said they will build apartment units instead of condos.
In recent months, about a half-dozen plans to build condos have been canceled or changed. Among them:
*Plans to transform the former Capewell Horse Nail Co. factory in Hartford into moderately priced condominiums was scrapped after investors cited concerns about the strength of the marketplace and profit margins.
*Another project that would have turned the city-owned building at 101 Pearl St. into condominiums also collapsed after the developer encountered escalating costs.
*A developer's plan to take a 12-story, city-owned building just blocks from Hartford's Bushnell Park and turn it into a few dozen luxury condominiums has collapsed - a victim of the project's small size, high remediation costs and the rising cost of construction.
*And in West Hartford, plans to build a second complex of condominiums at Blue Back Square were changed to include apartments instead after rising construction costs caused some concern about the ability of the units to sell.
"There is no question there was a softening of the condo market," said Van Winkle, the West Hartford economist. "Condos did well for most of 2006, but by the end of the summer, sales started to slow, and they fell precipitously by the end of the year. When the market slows down, it makes a lot of developers rethink their market until it picks up again."
As sales slowed, construction prices increased - a bad combination, the economists said.
"A lot of projects planned at a certain dollar value weren't able to be built," Van Winkle said. "With rising costs and slowing demand, you don't have to be an economist to figure out why the projects were canceled. It will come back. I think the market will revive itself later in 2007."
Reprinted with permission of the Hartford Courant.
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