HEARTLAND SNAPSHOT, NOVEMBER 2005

Cincinnati Multifamily Market

Expanding employment growth coupled with minimal new development is boosting demand for apartments in the Cincinnati metro. A lower vacancy rate is expected to result in revenue growth for owners of approximately 2 percent for the year. While investment opportunities can be found across the metro area, strong growth trends and the relative affordability of assets in northern Kentucky are likely to attract a growing number of investors to the area. The combined populations of Boone and Kenton counties in northern Kentucky are growing at an annual rate of 1.4 percent, compared with 0.5 percent for the entire metro area, good news for local apartment owners.

Boosting the market, employment in the Cincinnati metro is on track to expand 1.7 percent by year-end 2005. Approximately 17,000 jobs will be created, including many in the professional and business services sector. Also boding well for the market, construction levels will decline this year with 500 units slated for completion, down from 720 units in 2004. The development pipeline remains relatively sparse with minimal completions on the horizon. Recent completions include Aspen Pines, a 132-unit complex in northern Kentucky. In addition, the Falls at Settlers Walk, a 305-unit project in Kentucky's Butler/Warren County submarket, recently began leasing. The Village at Stetson, which is located downtown and consists of 131 units, is currently under construction and scheduled for completion in the summer of 2006.

This second consecutive year of limited construction, in addition to accelerated employment growth, will support a 40 basis point decline in vacancy to 9 percent by the end of 2005. Vacancy in the Highway 27/127 submarket is expected to fall from 8.9 percent to 8.5 percent by the end of the year. In addition, Butler/Warren County, the metro's largest apartment submarket, is forecast to add 10,000 new residents each year until 2009, and vacancy is currently 8.8 percent, down 270 basis points from a year ago.

As occupancy firms, asking rents will increase 0.8 percent to $656 per month by year-end 2005. Effective rents are on track to increase 1.2 percent to $615 per month as owners cut concessions. So far in 2005, the southeast and downtown submarkets have posted gains of more than 4 percent in monthly asking rents to $747 and $684, respectively, due to recently completed Class A properties in the Riverwalk area. In the Highway 27/127 submarket, asking rents will increase 0.9 percent to $574 per month while monthly effective rents are expected to rise 1.5 percent to $540. The metro's highest effective rents, at an average of $760 per month, are in the northeast submarket.

Investors are taking notice of improving numbers as well as the area's relative affordability. The median price per unit in the Cincinnati metro area is up 5 percent to $35,000 so far this year. Investor interest should pick up further as fundamentals improve and other Midwest markets become increasingly expensive. Many investors are focusing on assets in Hyde Park, Mason and West Chester as prospects for properties in those submarkets improve. In northern Kentucky, the median price per unit is approximately 15 percent more than the market-wide median, and the area's expanding population and growing commercial base merit a look from investors.

— Scott Przybyla is regional manager of Marcus & Millichap's Cincinnati, Cleveland and Columbus offices.

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