Pipeline Data a Key to Apartment Investment Success

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Pipeline Data a Key to Apartment Investment Success

Research provides Supply-Demand Answers

By Dave Sorter | Thursday, February 2, 2017

We all remember studying the law of supply and demand in college, and we’ve experienced the law’s impact first-hand as our careers progressed as apartment and student housing developers, investors, lenders and managers. More often than not, it was not a positive experience.

Whether you’re planning or building a new project, or you own an existing property in a location where new supply is on the way, you need answers to know how to react as supply and demand changes. Axiometrics’ new e-book, “The Pipeline to Confident Decisions,” is the definitive guide to how this information, gathered by apartment market research can help.

For example:

  • Developers looking to build in a particular submarket with a lot of new units under construction might wonder if they could be adding to overbuilding in the area. The rent one can charge – and therefore the profit margin – decreases if a market or submarket is overbuilt.
  • On the other hand, a submarket with little new supply identified could mean pent-up demand, which would translate to higher rents and revenues. Or, it could mean there is no demand in the area and building would be futile.
  • Demand can be analyzed by seeing how new supply in a submarket has been absorbed. A high absorption rate means new units are being leased quickly. A low absorption rate could depict a weakening leasing situation.
  • Property owners and managers may rethink pricing and concession strategies to maximize renewals and new leases if they see several new properties with the latest amenities being built nearby.

Those are some of the reasons why dependable, timely and accurate pipeline information is important in the apartment industry. The best pipeline information includes a unit delivery schedule, complete with information about a property’s location, name, number of units, style of building (garden, podium, wrap, etc.), type of parking, developer, architect, construction start and completion dates, as well as the initial move-in date.

For properties in the lease-up phase, Axiometrics provides absorption rates, asking and effective rental rates, and concessions. The ability to compare those metrics to market and submarket trends for existing properties, particularly Class A, can be invaluable when determining investment and management strategy.

The Critical Uses of Pipeline Information

Apartment and student housing markets don’t operate in a vacuum, and just studying the performance of stable properties does not paint the complete picture of a market’s viability.

Though Competitive Pricing Survey (CPS) reports are the key to determining pricing – especially at the floor-plan level for stable properties – Axiometrics’ pipeline reports, including its reports on the performance of lease-up properties, fills in the blanks for evaluating development opportunities in submarkets and markets.

The pipeline reports provide answers that can help developers:

  • Determine the feasibility of building in a certain location.
  • Identify markets and submarkets to add to or subtract from their list of target markets and submarkets.
  • Understand whether there is enough demand for a planned project, or if the market is overbuilt.
  • Learn what types of floor plans and amenities that are under construction and thriving to help determine what to build.
  • Find out asking and effective rents being charged by lease-up properties, to determine if rents are high enough to justify new construction.
  • Discover if properties’ deliveries are delayed and their impact on the unit delivery schedule.
  • See which competitors might be entering the market, and whether a smaller number of developers might have a stranglehold on the area.
  • Begin further research on new apartment properties by determining which floorplans are dominant and have the best rent growth over time.

Pipeline data helps investors:

  • Perform their due diligence on planned and existing student housing and apartment investments.
  • Determine the viability of markets and submarkets that could provide the highest return on investment.
  • Access information about developers and owners.

The information helps owners/managers:

  • Develop pricing strategies based on asking and effective rents at the new properties.
  • Market to current and potential new residents.
  • Decide whether to upgrade amenities or renovate all or part of a property.

And, specifically in the student housing realm, pipeline data helps:

  • Target universities for investment that might be facing a shortage of student housing.
  • Find out which schools are developing university-owned housing and where privately owned properties are particularly flourishing, based upon their distance from campus.
  • Determine the potential impact of new student-competitive apartment projects.
  • Identify by distance from campus where the new supply is being delivered, its absorption rates, and asking and effective rental rates.
Dave Sorter

Dave Sorter

Journalist

Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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