Win-Win: A 2015 Market Forecast

It seems like the rush to apartment building investment may be slowing down–lenders are reporting that while lots of things are going into escrow, almost just as many are falling out. Have the returns (cap rates) compressed (lowered) so much that asking prices are just not reflecting the values lenders (and thus buyers) need to close?

Maybe. But the market climate is still abuzz with activity. Interest rates are still low, and fundamentals just seem to be improving. With the minimum wage increase slated to happen this year and existing inventory unfazed by the luxury condos coming to market, it seems like the typical renter will be leasing the same or similar units but paying increased rents as we move into the 2nd quarter of 2015. Owners say the rush to rent at higher rates is slowing, yet $1500 for a two bedroom is a LOT better than the $1200 it was just a year or two ago. The average rent increase per annum sky rocketed in the last 6 months from $50 to $200 per month per unit!

But will the Kaka`ako influx of inventory make a dent in the feasibility of those rates? It doesn’t seem likely, especially since developers aren’t going to lower prices to workforce-housing-affordable rates. I mean really–“affordable” in Kaka`ako is another animal altogether.

And Oahu’s market has always been about appreciation over cap rate returns. Given enough time, the values increase because 1. we aren’t making any more (usable) land 2. the tenant pool is the tenant pool is the tenant pool except that more Mainlanders are coming and more locals are leaving, which further stabilizes the tenant pool, at least initially. 3. rents increase over time 4. therefore, so do values (see #1).

There are still some deals to be made with 25% down if the numbers are right, and with such attractive interest rates, now is a good a time as ever to buy. And sellers seem to get pretty close to what they’re asking.