Reno Multifamily Market Report

1st Quarter 2022

Posted In — Market Research | Market Report

A total of 24 multifamily properties traded in the first quarter of 2022 which amounted to $418,370,000 in volume. One key sale was ERGS properties, a portfolio sale of eight different multifamily assets totaling 1,077 total units which traded for $302,000,000 (or $280,409 per unit).

The Reno apartment market is projected to continue to experience heightened demand and deliveries. Just under 4,500 apartment units are currently under construction, with just over 6,000 units in the planning stages. An estimated 933 units are forecast to be absorbed in 2022 compared to 1,514 units absorbed in 2021 down 62% year over year. Due to the (Covid-19) eviction moratoriums being lifted, it is likely that vacancy rates may increase somewhat according to Johnson Perkins-Griffin. JPG stated that rental rates, which have continued to increase since the last recession, may begin to stabilize, or even decrease slightly.

Average rents increased slightly, up 1.05% in Q1 2022 compared to Q1 2021 but were notably up year-over-year to $1,633 in Q1 2022 compared to $1,469 in Q1 2021, an 11% increase. Rent growth over the past two years was even higher among studio and one-bed apartments averaging $1,150 for studios and $1,460 for one-bed units in Q1 2022 compared to $873 for studios and $1,194 for one-bed units in Q1 2020, a 27% increase. All unit types experienced decreases in vacancies as the average vacancy for all unit types fell to 2.66% in Q1 2022 compared to 3.18% in Q4 2021.

Cap rate expansion will start taking center stage in 2022. Mortgage rates in April hit 5%, the highest level since February 2011, continuing a stunning ascent since the start of 2022. The New York Times reported that policymakers project five more similarly sized moves over the course of 2022 as inflation has reached a 40-year high, signaling that they are prepared to pull back support for the economy markedly. The rapid rise in interest rates inflames an already menacing affordability crisis.

We will face some strong headwinds this year due to inflation and the rising interest rate environment. The Fed is already poised to deliver two back-to-back half-point interest rate hikes in May and June alone. Rising interest rates will negatively impact the debt proceeds that buyer’s will be able to borrow for new deals because it stresses the debt service coverage ratios that lenders require. Accordingly, expect proceeds to be closer to 65% as compared to the 70-75% that we’ve been enjoying. Cap rate expansion will start affecting core deals the most. To that end, buying a core deal at a 3.25-3.5% cap rate where there is no ability to add value and increase rents will be a tough proposition. Nevertheless, with little inventory available and investment capital waiting to deploy, demand will continue for the foreseeable future.

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