NORTHEAST SNAPSHOT, OCTOBER 2008
Fairfield and New Haven Counties – Multifamily Market
Connecticut’s New Haven and Fairfield Counties are supply constrained markets for development with extremely high barriers to entry for new residential projects. This is the principle reason that regional, income-producing properties perform at such a high level of stability, and the main reason why the markets are sought after for investment by both private and institutional investors.
Both markets are currently benefiting from a strong resurgence of interest from everyone from echo boomers to empty nesters looking to live in the city. From shopping and restaurants to proximity to local businesses, we expect a re-urbanization of downtown communities in the central business districts of New Haven, Norwalk, Stamford, Waterbury and Bridgeport. Access to public transportation is also important, which is why there is a focus on improved rail traffic on the New Haven to New York (Metro North and Amtrak) and Shoreline train lines.
Apartment completions totaled 126 units in the second quarter of 2008, and are expected to increase to 676 units by year-end. In addition to this market-rate, for-rent product, East Fairfield County will see the completion of 208 townhome units and 40 subsidized housing units by the end of the year. West Fairfield County will see 170 townhome units and 60 units of subsidized housing complete by the end of 2008. Fairfield is currently experiencing more of a condominium and townhouse construction trend than New Haven County, and a majority of new construction is occurring in Bridgeport.
Asking rents in Fairfield County for all product types averaged $1,814 in the second quarter, a 1.5 percent increase from the first quarter. Broken down, Class A asking rents averaged $1,300, a 1.4 percent increase from the same time last year. Class B and C asking rents averaged $855 in the second quarter, a 2.4 percent increase from this time last year. The West Fairfield submarket is expected to have higher rents at year-end 2008, with asking rents at $2,121. The East Fairfield submarket is expected to have lower rents at year end 2008, with asking rents at $1,307.
Vacancy in the second quarter of 2008 is 5.2 percent, up 0.30 percent from last quarter. The Class A rate decreased this quarter to 3.7 percent from 4.4 percent, while the Class B and C rate increased from 5.9 percent to 7.6 percent. East Fairfield saw the largest increase from this time last year, increasing from 4.6 percent to 8 percent. Rates are forecasted to stay at this rate through the end of the year.
After a first quarter that saw the completion of one multifamily project, there were no new completions in the second quarter. The single completion year-to-date is The Wintergreen of Westville, a 294-unit luxury apartment complex located in the Westville submarket. However, total 2008 apartment completions are expected to increase to 900. This does not include expected condo, townhouse, or senior living completions. A total of 1,659 units are in planning in the Naugatuck/Waterbury submarket, and 231 units are in planning in the North Haven/Wallingford/Meriden submarket, but these may not reach development given the softening national market
A majority of new construction is occurring in the cities of New Haven, Hartford, Stamford and Naugatuck, where there has been a strong improvement in occupancy. In fact, New Haven vacancies remain far below the second-quarter U.S. national average of 6 percent. In the second quarter of 2008, New Haven vacancy rate declined 30 basis points from last quarter to 3.8 percent; however, vacancy is forecast to tick up to 4.7 percent by year-end 2008.
The suburban submarket is seeing the biggest improvements in vacancies from second-quarter 2007 to second-quarter 2008, with a decrease from 5.2 percent to 3.6 percent. Class A apartment vacancy rates decreased from 3.3 percent to 4.2 percent in the second quarter, while Class B/C apartment vacancy rates increased slightly from 4 percent to 4.3 percent in the second quarter. In Fairfield County, the second-quarter vacancy rate increased 30 basis points from the last quarter to 5.2 percent. Overall, vacancy rates are forecast to remain at 5.2 percent by year-end 2008.
Overall asking rents in New Haven County averaged $1,300 in the second quarter, a 1.4 percent increase from the previous quarter. Class A asking rents increased 1.8 percent to $1,293, while Class B/C asking rents jumped 7.6 percent to $1,459. The North Haven submarket is expected to have the highest rents at year-end 2008, with asking rents at $1,216. The Naugatuck submarket is expected to have the lowest rents at year end 2008, with asking rents forecasted at $909.
There are plenty of projects currently in the development pipeline. A 28-unit apartment complex is under construction in Madison and is expected to be completed in 2008. Yale University recently unveiled plans to add two new residential colleges to its existing 12, which could lead to a 12 or 13 percent increase in undergraduate enrollment, up to 6,000 students from 5,300.
Many residential units are coming from various mixed-use projects currently under development. The Ninth Square project, which is comprised of retail space and residential units, is entering its last phase. College Square is a 19-story mixed use project on College and George streets that will include more than 220 residential units, with more than 50,000 square feet for retail and hotel space, on 2.5 acres. Finally, New Haven’s Long Wharf area is being revitalized along with several new development projects. One of these is the 6-acre Coliseum site, which would incorporate the Long Wharf Theatre on 2 acres, creating a mixed-use site featuring first-floor retail and office, and residential space on the upper floors.
Based on recent completions, developers are looking to attract higher income renters along with senior citizens, whom are looking to downsize to a smaller home. This is shown in the recent completion of a 78-unit senior housing project in Wallingford. Connecticut remains one of the healthiest multi-family markets in the United States. Rental rates continue to rise, cap rates remain relatively low compared to other regions of the country and tighter underwriting standards have stabilized investment activity to more normalized levels in 2008. Over the long term, as economic momentum continues to improve, expect the Connecticut apartment sector to record substantial gains, driven by solid demographics.
— Steve Witten is a senior director of the National Multi Housing Group at the New Haven, Connecticut office of Marcus & Millichap.
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