Guest post by Jeff Englert and Nathan Farha, multi-family specialists, The Martens Companies After more than a decade of minimal multi-family construction activity, numerous developments are planned for the Wichita market. Fueled by increased occupancy rates, historically low interest rates and a demand for Class-A product, more than 2,500 units are in the planning, development or construction phase.
The last surge in multi-family development took place from 1998 to 2000, when more than 2,000 units were added almost exclusively in the northeast and northwest quadrants of Wichita. The residential housing boom of the 2000s mixed with rising cost of construction, low rental rates and the economic downturn in the Wichita market virtually halted new development during the past decade. Of these, the primary deterrent has been Wichita’s low rental rates. According to a report produced by Reis in 2012, apartment rents in the Wichita market were the lowest among the 82 urban markets with rents averaging $510 per month, compared to the national average of $1,091.
In January of 1998, the occupancy rate peaked at 94 percent, similar to today’s market. The occupancy rate bottomed out at 87.5 percent in January of 2001, and the new units were not fully absorbed until 2008. The Wichita multi-family market is currently operating at 93 percent occupancy. Most Class-A and -B properties are operating above the overall market averages, with Class-C properties located in less desirable areas bringing down the market averages.
Similar to the growth experienced in the late ‘90s, proposed new development is focused on the northeast quadrant of Wichita, and in the northwest and downtown areas to a lesser extent. Nearly 60 percent of the planned units are located northeast, and most are positioning themselves as Class-A developments with amenities not found at competing properties; such as putting greens, attached garages, pet washes, upscale clubhouses, stainless steel appliances, etc. Rental rates for existing Class-A northeast complexes are in the 90-centto $1-per-square-foot range with the amenity-rich properties at the upper end. The majority of the Class-A northeast properties are operating around 95 percent to 97 percent occupancy, with the most sought-after properties at nearly 100 percent. Most new developments in the area are proposing rents at the upper end or above the existing properties, typically in the 95-cent to $1.15-per-square-foot range.
The downtown and Old Town multi-family market has continued to flourish. During the past 20 years, warehouses and office buildings have been converted to apartments and condos. These projects have been well-received and consistently operate at 98 percent to 100 pecent. Additionally, these units command the highest rental rates in the market, varying from 90 cents to $1.50-plus-per-square foot. There are plans for additional “rehab” projects in the CBD. However, for the first time in more than 30 years, the CBD will experience a significant amount of ground-up development. Three planned projects along the Arkansas River could add 300 units to the market. These properties should be well-received assuming rents will be closer to those proposed for the new suburban projects. It’s questionable if tenants will be willing to pay higher rents typically associated with the unique “loft” characteristics unless projects offer exceptional unit and site amenities.
The big question is what effect will the addition of 2,500 units have on the market? It is anticipated that the market can absorb the new higher priced units assuming they come on line over a reasonable timeframe and the economy grows at a consistent rate. Existing properties, with less attractive amenity packages and locations, may feel the impact the most and will likely experience a slight decrease in occupancy leading to a period of increasing use of concessions.
The one guarantee is that the Wichita multi-family market will be very dynamic in the coming years. Urban development will continue to offer a mix of distinctive loft renovations and more traditional units; continuing to add to the viability of downtown living. The new suburban properties will focus on more amenity-laden properties with conventional floor plans and higher rents. In the long run these trends will result in a shift in the market creating new standards for Class-A multi-family; one with a high level of amenities and increased rental rates.