Industry Forecast: Vogt's Presentation is Industry Groundhog Day
On Thursday, March 14, 2019 nearly 100 CAA members met at the Lincoln Theater for the first General Membership meeting of the year. In keeping with tradition, CAA Executive Director Laura Swanson welcomed those in attendance and opened with recognition of the CAA’s 50th Anniversary celebration which will be carried through the year. Swanson then congratulated the individual with the highest score from the CAA Bowling for Charity luncheon, Columbus Newsome on his achievement. She next recognized the team from Commercial One on achieving the highest team total. The acknowledgement continued as Swanson congratulated and each new CAPS designee in attendance. CAA President, David Holzer presented each their certificate in turn. Next, CAA Associate Council Chair, Mike Lange, came to the podium to encourage everyone in attendance to visit this year’s CAA Expo on April 17th at Kasich Hall. He spoke to event highlights including National Speaker Kate Good and the new addition of Maintenance Mania. Holzer returned to the podium to introduce the day’s keynote speaker, Rob Vogt of Vogt Strategic Insights who would provide his annual Industry Forecast which he aptly named “Groundhog Day.” Vogt stated that the name was indicative of the trend of the industry having remained relatively the same for the past few year and that was good news for everyone. He began with a recap of 2018 and then predicted what he thought would happen in 2019 and the future. “I think the good news here is that there isn’t a lot on the horizon that I see that is going to affect our industry over the next several years, unlike the early 2000’s,” Vogt started. “Average rents increased higher than expected which is good news. In fact, rents increased 5.1% in 2018 compared to a 4.4% in 2017. Good news for B and C quality properties, they continue to perform extremely well. They had a growth rate of 3.8% compared to 2.2%.” Referencing media reports that stated rents had increased 8% - 10% Vogt felt that was overstated and that the 5.1% was more in line with what was actually happening. He noted that the pipeline in Central Ohio continues to grow with new projects being announced almost weekly. “Some of the factors that are impacting this recent success trend we’ve had, renters aren’t moving as much. They seem to be staying put,” Vogt said. “Part of the problem is that renters don’t have any place to move to. When you’re talking about vacancy rates below three and four percent there simply aren’t places for them to move to. Another reason is that we’ve seen a tremendous increase in older, adult renters.” Citing RentCafe, the number of older renters has grown 43% in the last decade. A remarkable figure that Vogt expects to continue into the future as Baby Boomers continue to look at their options stating that renting allow more flexibility and options that commitments to ownership does not provide. Speaking to rent growth change, the amount of stock really didn’t move the needle. Indicating that the performance of stock in the Central Ohio market has done remarkably well during the recent run. 2400 units were released into the market in 2018 with a moderate rent increase and a low vacancy rate. Vogt noted that studio efficiency units have had the greatest rent growth over the last five years at 5.7%. It is suspected that it is due the higher turnover rate among those units suggesting that most people move from those to units with more space. When comparing Columbus to the United States and the Midwest, Vogt pointed out that Columbus rents are still below comparative cities. He felt there was still room to grow for Columbus rents and still provide quality value over other cities. When factoring in the job stability, it was surprising Columbus rent growth did not increase at a higher rate. Of vacancy rates, class A was slightly higher than the other classes, however, it should be considered that a number of those are currently in lease-up. The same could be true with the higher vacancy rate of 5.3% factoring in units just coming online. In class B and C, there has been a higher rent growth than has been seen in the past 11 years, emphasizing the high demand for rental properties with overall lower vacancy rates. As he has in the past, Vogt broke down vacancy rates, proposed properties, properties coming online and properties under construction in each area of Central Ohio. “None of the submarkets are experiencing a vacancy rate which I would be cautionary, at this point,” he said. “It appears we have a tremendous number of units in the planning process that aren’t getting to the completion stage. If we ever completed 16,000 units in Central Ohio it may be an issue we’d have to deal with for excess product short term. Overall, I don’t see all of these units coming to fruition.” Vogt spent the latter half of his presentation discussing the prediction that Columbus will see 1 Million new residents be the time we reach 2050 and what that will mean to the market. “We took the data we had for the last few years and wondered what the correlation was between building permits and job creation. This, to me, is probably the most incredible part of the report. We took the number of building permits issued in the 10 county Columbus Metropolitan Service Area between 1991 and 2017 and we had 276,000 permits,” Vogt said. “We also looked at the number of jobs created in that same time period and it was 276,000 jobs. Believe me, we looked at this several times to make sure this information was accurate.” After consulting with national figures, the ratio was representative of the housing versus the jobs created. Projecting that out into 2050 factoring in past job creation and moving it into the future Vogt suggests there’s a tremendous need for housing over the next 30 years. In fact, Vogt believes it could be over 460,000 new units over that 30 year timeframe. Of those units, it’s estimated that 233,000 of them will need to be multifamily units. Broken down further, that’s a need of 14,000 units per year. Columbus currently has 8,000 units coming on line each year. “I don’t expect that to change over time. There’s going to be a significant housing crunch for the next several years in Ohio to 2050,” Vogt said. “I really want to keep an eye over the next couple of years to see how many planned units come into our inventory.” Despite what seems like a lot of over construction Vogt cautioned that there is not overbuilding in Central Ohio. In fact, the market is under building for what is necessary to support the Central Ohio economy. With the prime renter groups remaining in rental housing. It will be challenging to build the kind of single family housing that will lure Millennials out of rental housing. Vogt believes it will be the preferred housing type for a long time to come. Vogt fielded various questions from members before thanking everyone for their time and awaiting how his predictions might fare prior to next year’s presentation.
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