MARKET SNAPSHOT: Looking for Stable Investment Opportunities? Look to Norfolk, Va.
By Erika Schnitzer, Associate Editor
August 26, 2009 – Norfolk, Va.—Apartments in Norfolk, Va. are likely to offer more near-term stability than most everywhere else in the nation, according to Marcus & Millichap’s Norfolk RentApartment Research Market Update for Southeast Virginia, Second Quarter 2009.
“This is one of the strongest markets in the country,” asserts Jay Sloan, investment advisor in Marcus & Millichap’s Williamsburg, Va. office. The city’s strong core fundamentals, mainly due to the presence of the military, have continued to fuel the local economy, he adds.
While rents have come down due to the delivery of 1,400 units last year—and an anticipated 700 units this year—the increased number of foreclosures has resulted in more apartment absorption. According to the report, rents at mid-tier properties are 16 percent lower than the typical mortgage payment for a median-income home.
Norfolk VacancyAsking rents are expected to decline 1.1 percent per month in 2009, marking the first annual period in this decade in which area rents have declined. Though the concessions depend on the location of the property, Sloan acknowledges that there are not many being made.
Because of the nature of the metro, “many property owners I talk to are 85 to 90 percent occupied, if not 100 percent, and getting asking rents. Few are trading out of their properties, due to the stability of the asset class, as well as strong cash flows,” Sloan tells MHN.
Cap rates on institutional-grade assets have not increased much and are still compressed, while the metro continues to see outside capital buying into the market, Norfolk SalesSloan notes. According to the second-quarter report, cap rates have risen between 50 and 75 basis points in the past year, and the median price of properties sold in the last year was $57,300 per unit, a 4.8 percent decrease from the previous year.
For smaller—100 units and fewer—Class B and C properties, cap rates are “more realistic,” sitting at the 8 to 9 percent range. In addition, Sloan notes, “ a lot of local and regional banks are well-capitalized and are aggressive in providing leverage and debt services.”
