The Courier-Journal recently reported a rash of traffic tie-ups looming for Louisville drivers.
What’s going on? Bridge construction? Roadwork? Increased holiday activity?
Nope. The paper cited a number of new apartment projects being developed throughout Jefferson County.
The demand for rental housing has been increasing in Louisville since the real estate crash of 2009. There are other reasons, too, many of those having to do with millennials taking downtown jobs and wishing to live closer to work – and also closer to downtown’s burgeoning restaurant and bar scene. Millennials are notorious for preferring the shallower commitment of renting to all the deeper implications of owning a house, like the down payment and the 30-year mortgage.
Retiring baby boomers and recent empty-nesters also are looking to downsize, and apartment rentals – especially in convenient locations where they’re not dependent on their automobiles – often make the most sense.
Real estate firms look at local traffic patterns, of course, just as they track all kinds of cultural demographics. They also look at shovels in the ground and cranes in the sky, projects proposed and contracts signed.
And they churn out statistics, which lead to all the state-of-the-market reports frequently reported on by Insider Louisville.
Commercial Kentucky, the local real estate services affiliate of international giant Cushman & Wakefield, recently released its “Apartment Snapshot Q3 2016,” a market update of the multifamily housing sector, rental properties of 50 units or more. (They’re the big ones, of course, that lead to all the traffic tie-ups.)
Among Commercial Kentucky’s conclusions is that the proliferation of newer rental properties with updated amenities is taking advantage of the high demand to increase Louisville’s rental rates. However, in one of those statistical anomalies that befuddle the researchers, local rents were actually down at the end of the third quarter.
“After 10 consecutive quarters of increasing rent, the average cost of an apartment decreased slightly, by 4 percent this period,” the report said. “This may signal that rents have peaked in the current market cycle, or have temporarily stalled before several new high-end developments enter the market.”
Craig Collins, executive vice president at Commercial Kentucky and one of the authors of the report, is convinced that the longer picture of rents in this area is trending upwards.
“With over 20 projects planned, under construction, or in lease-up, the competition among landlords for high occupancy rates could directly impact rents,” his report says. “We anticipate the new construction and development of multifamily product in the Louisville market to ‘rebound’ from this slight rent downturn leading to increasing rents within the next two quarters. The new developments being delivered in Louisville have superior interior packages and, in the larger developments, an extensive amenity package which should increase average rents across the board.”
Currently, according to the report’s snapshot, monthly rents are down slightly across the board since the second quarter ended in April:
- Three-bedroom apartments slipped to an average of $1,170 a month, after hitting just below $1,200 three months earlier, a drop of 3 percent;
- Two-bedroom units fell to $866 a month, after peaking at above $900 last quarter, a drop of 4 percent;
- One-bedroom units were at $740 a month, after nudging close to $800 last quarter, a drop of 6 percent.
However, those statistical blips are not uncommon. A longer view upholds Collins’ estimation of the market’s upward path. Five years ago, the average rents were: one-bedrooms, about $575; two-bedrooms, under $700; three-bedrooms at about $800. And the rise, Collins says, will come from more modern, better-equipped rental units.
“Rents are expected to rise,” he insists. “The supply is still coming but it is not yet meeting the substantial demand. And newer units with higher amenities will charge more than older units with older amenities.”
The demand is also high because the supply is low. The effective occupancy rate is nearly 100 percent. In the 11 submarkets that Commercial Kentucky tracks – from the New Cut Road corridor in the extreme southeastern part of the market to the East Brownsboro/Westport Road corridor in the burgeoning northeast – occupancy is as high as 98 percent (in Oldham, Shelby and Bullitt counties), no lower than 91 percent (in the Central Business District).
That’s in part due to a strong local employment market, currently back at the 4.1 percent level as of September, well below the 5 percent national average. And it may be getting better, says the report:
“Recent economic news for the area includes the following items:
“Technology services company, Computershare, has received final approval for tax incentives and has adjusted its projected job totals in downtown Louisville from an initial estimate of 250 to 1,100 people. Computershare’s projected capital investment has also grown from $12 million to $32 million and its average hourly wage is jumping from $20 to $30.”
In addition, says Commercial Kentucky:
“International law firm Hogan Lovells, headquartered in Washington, D.C., has signed a 10-year lease to become the anchor tenant at Paragon Place [Shelbyville Road at Hurstbourne Parkway]. The opening of this new branch represents a $9 million investment and the firm plans to create 50 new jobs immediately, with the expectation to grow to 250 positions at this location.
“NTT Data, Inc., has started hiring for 300 open positions in its North America Service Delivery Center in Louisville, all focused on financial services. Of those, about 40 would be leadership roles.
“Magna Seating of America, Inc., which does business as Louisville Seating, intends to create 170 jobs at its Shepherdsville facility as part of a $12.7 million plant expansion.
“LaGrange-based The Rawlings Group plans to bring on 200 new staff members later this year. The Rawlings Group analyzes and mines data to help companies reduce health care costs and performs claims-recovery services for the health care industry.”
In the neighborhood segments that Commercial Kentucky tracks, Collins sees a few particularly strong trends.
“The South/Southeast continues to have strong demand because of the area’s big employment generators, like Ford, GE and UPS,” he says. “In the East, new top-of-the-line communities with higher rent levels are also experiencing high demand.”
He says St. Matthews and the Highlands “will always have high demands, and developers have found that apartment-dwellers are willing to pay for newer construction.”
But it is in the urban districts, those walkable communities close to downtown, that the report sees the greatest possibility for growth.
“We anticipate the communities that are first to the market in the urban core and near-urban core will be successful in filling a gap that Louisville has not experienced in the past. The big question for developers and projects in the urban core would be, ‘How deep is the market for the high-amenity urban developments? The next 12-18 months should prove to be very exciting for the Louisville apartment market as these new communities come online and attract residents to an active and growing urban environment.”