Apartment vacancy shows midyear tightening

Aug. 22, 2019

If there’s a symbol for the state of the Sioux Falls multifamily market, it might be this:

Less than two months after opening for residents, the first building in downtown’s Cascade project is 80 percent leased.

“We’re blowing our projections out of the water, which is awesome,” said Ashley Lipp, vice president of residential property management for Lloyd Cos., The Cascade’s developer and property manager.

“The team worked really hard on that. We have our second building coming online and hope to have it open next March, so we’re excited for that and gearing up for that as well.”

The Cascade has brought more than 100 new units into the market this year, but it’s more the exception than the rule.

Fewer new apartments combined with continued strong leasing caused the overall vacancy rate in Sioux Falls to drop to 7.69 percent, according to the semi-annual survey conducted by the South Dakota Multi-Housing Association.

That’s down from 9.5 percent in January.

A couple of properties, including The Cascade, are in lease-up and not counted toward the overall vacancy.

“Historically, the July report shows a decrease in the overall vacancy, and this report followed suit,” the association noted.

“We have seen the growth of the Sioux Falls market, the rental increases and the decline of concessions at properties. All evidence points to a strong multifamily market.”

The numbers mirror what Lloyd is seeing across its 5,000-unit portfolio in Sioux Falls, Lipp said.

“It’s really right on trend with what we’re seeing,” she said.

“We’ve been seeing some of the highest occupancy rates since 2017, so that’s been nice to see. We’ve done some things internally to try and boost occupancy, and I think that’s playing into it, but there’s just been less units coming online too, and I think it’s given the market a little bit of a chance to catch up.”

The rate also reflects what Bender Midwest Properties is seeing across its 1,200-unit portfolio, president Jill Madsen said.

“Sioux Falls is still in the process of absorbing new units built in the last three to four years,” she said.

“Ninety-two percent seems to be a healthy occupancy rate for the market. It is typical to see an improvement in the July occupancy numbers. People try to avoid moving in the winter months unless it is absolutely necessary.”

Bender has a seen a slight increase in vacancy in its one-bedroom units year-over-year, she said.

“We are seeing higher vacancies on the east side, but that is also where so much of the new construction has been,” Madsen said.

One of the biggest rebounds Lloyd has seen has been in existing town home rentals, Lipp said.

“Those really have been occupied at 95 percent or greater, which is awesome,” she said.

The vacancy report showed little change in HUD unit occupancy, which sits at 4.58 percent vacancy compared with 4.63 percent to start the year. Tax credit properties’ vacancy dropped to 8.05 percent in July from 8.52 percent in January.

“Historically, tax credit has a higher vacancy due to the lengthy qualification process required,” the report said. “Those units are vacant longer, though they may have an application holding them.”

The number of new multifamily units built citywide has been dropping in recent years. There were 945 new units in 2018, a decrease of 22 percent from 2017.

Building hasn’t stopped, however. Through July, the city has issued permits for 338 new multifamily units, a decrease of 154 units from the same time in 2018.

“With the continued growth of Sioux Falls and surrounding areas, we are sure it will be awhile before we see any kind of a slowdown,” the report said.

Lloyd has leased new units this year on all sides of town, Lipp said, and has seen uniformly solid interest.

“It is across the board. People have their side of town they want to live on, but it has been pretty evenly spread,” she said. “I think 2020 will be a slower year (for new construction), and if I could predict the future, I would say in 2021 we will see a lot of new units coming online again.”

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Apartment vacancy shows midyear tightening

“All evidence points to a strong multifamily market.” Midway through 2019, here’s how the Sioux Falls apartment market appears to be performing.

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