How commercial brokers can help ease the Sun Belt’s apartment hangover
Rent concessions remain common across the Sun Belt, where new Class A buildings have offered months of free rent, according to Snyder. Absorption is now exceeding new deliveries in several heavily supplied markets, an early sign of rebalancing.
“One of the big questions, and this is on a market-by-market basis, is the degree to which those moderate rent growth, modest rents or concessions are permanent or not,” he said. “If they really are just a temporary cost of lease-up in order to get the latest supply overhang more occupied, then that’s a temporary thing. And from a lender’s perspective, those will materialize into more solid cash flows in the future.”
South Central has the highest median city vacancy rate at 11.2%, followed by the Southeast at 10.8% and the Southwest at 10.2%. All three are above the 8.1% national median.
“Lots of vacancy that isn’t filled can limit the size of a loan that you can take out, limit the size of your refinance and the refinance proceeds that you have,” he said. “It can require an owner to contribute additional equity in order to pay down some of the existing loan, if vacancy is high enough where you’re not covering your debt service or not covering it according to the covenants established in the loan.”
Reading local markets
Vacancy varies widely even inside the same region, according to the First American analysis. In the Southeast, city vacancy rates range from 4.8% to 18.6%, while the Southwest runs from 5.3% to 11.3%.
