Although they were pummeled by Wall Street in the third quarter, multifamily REITS did have some good news to report—more renters than ever are shunning home ownership and staying in their apartments.
Camden Property Trust, a REIT based in Houston, reported that move-outs for home purchases fell to an all-time low of 13.6 percent in the third quarter, after peaking at 24 percent in 2004. UDR, a REIT based in Highland Ranch, Colo., saw its move-outs drop from 15.5 percent in the third quarter of 2007 to 13.1 percent in the third quarter of 2008.
"Home ownership is at historical lows," says Christopher Wimmer, a vice president and senior analyst for New York-based Moody's Investors Service. "You simply can't get lending to do that. People are worried about the economy and their jobs, and they don't see [buying a home] as a good idea at this point."
AvalonBay Communities, a REIT based in Alexandria, Va., saw fewer than 20 percent of its residents move out to buy home. That's very low for the luxury apartment operator, which caters to upscale renters who often have the financial wherewithal to purchase a home. On the other end of the spectrum is Home Properties, a REIT based in Rochester, N.Y., that has lower-priced apartments in areas with high home price (median price of $318,000). In the third quarter, Home only saw 12.4 percent of its renters move out to purchase homes. In the second quarter, that number was 12.6 percent; in the first quarter, it was 11.1 percent.
"These are the lowest numbers we've seen in three years," says Charis W. Warshof, vice president of investor relations for Home.
Renters' reluctance to move into homes did help the REITs grow during a messy third quarter. Though same-store NOI growth is slowing, it collectively averaged 2.8 percent, according to Citigroup Global Markets.
"The companies have sounded more concern that they are seeing slower demand because of a weaker consumer outlook," says Stephen Swett, an analyst with Keefe, Bruyette & Woods, an investment banking and security brokerage firm based in New York. "They're seeing very significant difficulty pushing rent increases on new residents. They're having more success in ratcheting up rents in renewal tenants."
As layoffs continue to pile up, the question may be whether keeping renters disinclined to buy will be enough to offset increasing unemployment. Most people's best guess is no. "We do expect 2009 to be a challenging year," said David J. Neithercut, president and CEO of Chicago-based Equity Residential, which saw its move-out rates fell to 5 percent in the third quarter of 2008.
Learn more about markets featured in this article: Chicago, IL.