Class-C and class-D apartment product in Las Vegas is driving rent growth. A new report from Atalyst Financial Group shows that class-C and class-D apartments—called one and two star apartment product in the report—is leading the rent growth with 7.9% annual rent growth. The Las Vegas market overall has seen 5.3% annual rent growth, according to the report. While lower quality product is leading rent growth, the fundamentals driving rent growth are the same across the board.
“The two primary factors behind the rental growth are strong job growth and a growing population in the area,” John Gilchrist, founder of Atalyst Financial Group, tells GlobeSt.com. “Nevada has been one of the fastest growing states, if not the fastest growing state for many decades, and Las Vegas and Clark County anchors the state as the biggest metropolitan area. In conjunction with this population growth, the job market is strong and has recovered since the recession that took place a little over a decade ago. Unemployment is just under 4% currently, which is in line with the national average, sitting right around 4%. I expect this to stay steady for the foreseeable future.”
While lower quality properties are driving rent growth, class-B and class-A product has negative absorption of more than 500 units. “I am not concerned, as the current levels are still very much under control; however, it will be interesting to see if development of multifamily units in the area starts to react to the market and shrink a bit,” says Gilchrist. “I do believe that the vacancy rate is going to increase a few percentage points as more units get delivered in the coming quarters. Overall, I would say that absorption has been strong and the market is well balanced.”
While there was some negative absorption, the overall leasing market is activity. That has, of course, put pressure on pricing. “Las Vegas multifamily real estate in 2019 had over $2 billion inked in property sales, with the average vacancy at the time of sale around 5%. Meanwhile, 2020 has already started out with a few large sales, and cap rates were strong for these projects at around 5%,” explains Gilchrist. “We expect vacancy rates and cap rates to stay in this range throughout 2020, and these factors will continue to stimulate a healthy exchange of properties during the year, as investors will see opportunities to further expand and diversify their portfolios.”
The market is likely to keep growing. This year, leasing activity has been strong. “At the moment, the good news is that there doesn’t appear to be any slowdown in the growth of Las Vegas’ multifamily real estate market,” says Gilchrist. “The foundation is fueled by the aforementioned consistent population and job growth. This is illustrated as both for sale residential and multifamily residential are having a very strong first quarter. Additionally, there are plenty of big projects well underway, including the $4bn Resorts World, the Convention Center expansion, and the new Raiders stadium. These are the types of developments that can continue to drive population growth and ultimately fuel leasing activity in the area.”