There are glaring signs that high-end apartment complexes in popular downtowns and luxury residential properties in hot spots like Aspen, Colo., are struggling to find renters and buyers.
Luxury rentals have flooded many U.S. downtowns in recent years, while multifamily homes in suburbs have been in relatively low supply. In fact, according to real estate research firm CoStar, the supply of apartments in the nation’s central business districts has soared 16.6% and 13.5% in “secondary core” areas around those downtowns, compared to only 5.5% for suburban units in the mid-price range.
Developers’ responses to the perceived demand for urban living, led to what may have been overdevelopment of high-end properties that are too expensive for many to rent, according to Paul Davidson reported on CoStar’s findings in an August 16, 2016 article on USAToday.com. In reality, the emphasis on expensive apartments in downtowns may be leaving the outlying markets in need of product.
CoStar’s numbers paint a picture of a luxury market losing its luster. According to the USAToday article, vacancy rates in downtown and secondary core areas have increased from 3.4% to around 5.5% during the last four years.
There’s more to this statistic. It seems that new buildings also are taking longer to lease. New apartments that opened in the first quarter of 2013 in the U.S. had a 52% average vacancy rate when they opened in the first quarter of 2013. The rate for those apartments settled to about 11% within 18 months. New units opening in the first quarter of 2015 had a 72% vacancy rate, which settled to 18% in the last 18 months.
Luxury buildings in central business districts drove the notably higher vacancies, according to CoStar.
As one would expect, the market has responded with average rents rising 12.3% in downtowns since 2012, compared to 18% of mid-priced suburban apartments, according to the article.
As a result, owners of high-end downtown properties are having to offer perks, such as months of free rent, to lure tenants. That’s while owners of those sought-after suburban properties are becoming less forgiving with required minimum credit scores and more. At the same time, it appears there may be a shift in development, with more of an emphasis on suburbia, according to the article.
What’s happening in the luxury apartment sector is particularly noticeable in big cities, like Chicago and Los Angeles. But it’s by no means limited to big metro areas or apartments.
Aspen, Colo., which is bustling with tourists who are driving up retail sales, has taken its first-ever sustained nosedive in the local luxury real estate market. One example: single-family home sales in Aspen are down 62% in dollar volume through first-half 2016, according to an August 12, 2016 article on DenverPost.com.
Why the high-end housing market in Aspen is so hard hit remains a mystery, with market experts speculating a range of causes from the nation’s political climate to Zika. Local brokers claim luxury markets from Palm Beach, Fla., to Manhattan, are slowing, causing some to wonder if the high-end buyer has disappeared, according to the article by Jason Blevins.