Aug. 5, 2024

A spike in multifamily vacancy might be coming — but it hasn’t exactly arrived yet.

The South Dakota Multi-Family Housing Association’s semiannual survey shows 6.29 percent vacancy, up just slightly from 6.05 percent at the start of the year.

One year ago, it was 5.6 percent.

But consider this: This time last year, the study covered 15,571 apartments that property owners and managers self-reported. This year, it was 18,255. Only apartments considered stabilized at 85 percent occupancy or better are surveyed — those still in lease-up aren’t included.

“The steady demand for multifamily properties continues to demonstrate resilience, reflecting the enduring appeal of renting your home,” Denise Hanzlik, the association’s executive director, said in the report.

“This survey provides valuable insights into the local housing market dynamics, reflecting the shifting demand and supply trends with the Sioux Falls area.”

While the data isn’t comprehensive — surveys were sent to owners and managers of 22,100 apartment units, so there was no response for about 4,000 units — it does give a look into how occupancy and rental rates are trending.

Conventional properties saw the greatest change in vacancy, rising from 5.87 percent in January to 6.12 percent in July. Of the 15,350 units that reported, 940 were vacant. In addition, the association estimates that 2,539 units of newly constructed apartments are now leasing and not included.

For instance, at Lloyd Cos., which represents a significant number of apartments in the report, the overall portfolio recently surpassed 10,000 units under management. While that includes some properties in Rapid City and the Des Moines area, the majority are in Sioux Falls. Within the portfolio, about 3,800 units are still considered in lease-up, said Ashley Lipp, vice president of residential property operations.

“A few of those are close to stabilizing, but we’ll have more coming back in,” she said.

Despite all the new inventory, though, occupancy is “about 1 to 2 percent lower than 2023,” she continued. “And considering there’s been more delivered this year than any other time in Sioux Falls history, 1 to 2 percent isn’t bad.”

Lloyd rented more than 950 apartments in March alone, setting a single-month record, she said.

“Obviously, it’s more competitive with the number of units that have been built in Sioux Falls, but we’ve been able to maintain our occupancy at our stabilized portfolio, and we have been able to keep up with new properties coming along as well.”

Cresten Properties, which also added hundreds of new units in recent years, is “seeing steady and consistent lease-up,” CEO Kevin Tupy said. “Obviously, not at the momentum and pace that it was last year, but we’re pleased with our rate of lease-up given all the units coming online.”

Unlike a couple of years ago, the days of property managers having few to no options for renters seem to be over. In their place, property managers are starting to offer rent concessions to lure tenants.

“You didn’t see concessions a year ago, and you are seeing more, and some are getting very competitive, so that’s an advantage for renters,” Lipp said. “They get to save a little bit, and price sensitivity is still something I know is top of mind for everyone. Renters definitely have more options when it comes to that now.”

Typical concessions include a month’s free rent when signing at least a one-year lease, though others have gone as high as two months and included incentives around extras such as parking costs.

Cresten is offering two months free for certain properties, and “we’ve had overwhelming success with that,” Tupy said. “I think it’s a sign of the economic times we’re in. Even people in higher economic strata are taking advantage of the deals, and why wouldn’t they?”

At an upcoming Aug. 17 event, he said there will be a new offer that shows “an even further aggressive stance.”

Rents themselves also appear to have stabilized, looking largely the same as they did one year ago. The average one-bedroom apartment reported in the survey rented for $994 per month, $8 more than the start of the year but down from $1,012 a year ago. The average two-bedroom went up $7 from the start of the year and $10 from the same time last year.

Newly built apartments not yet stabilized are showing higher-than-average rents so far.

Vacancy in tax credit properties rose to 7.62 percent in July, compared with 7.21 percent in January and 7.54 percent a year ago. There’s one new project under construction to bring 39 additional apartments.

HUD properties saw a decrease in vacancy to 1.4 percent in July, compared with 2.34 in January, with three available units and none under construction.

In the downtown Sioux Falls market, which is leasing up hundreds of mostly higher-end units, “I think people are taking their time and shopping around,” said Anne Haber, co-owner of Pendar Properties. “They’re shopping the market.”

Occupancy is “holding well” at her  stabilized portfolio, which includes The Carpenter and Railyard Flats. The newer properties, The Clark and Dakota Flats, are bringing hundreds of new options to Cherapa Place and are “on track to meet our goals for lease-up,” she said.

“It’s been a strong summer, and we hope it continues through the fall. Weather has a lot to do with it. June was a little slow, and I think weather had a lot to do with that, but we’re seeing very steady activity.”

For incentives, Pendar Properties is “trying a few things to see what people like,” Haber said, including waiving deposits and offering a professional moving credit that varies depending on whether residents are moving from in town or out of town.

“Overall leasing might be a little slower than expected, but long term we’re very optimistic,” she said.

Building activity in Sioux Falls “has definitely slowed when compared to the past two years,” Hanzlik said.

The city issued building permits for 574 multifamily units through July, compared with 1,175 for the same time last year and 2,400 the same time two years ago.

Major projects approved so far include:

• The second phase of Spring Creek apartments, in the area of 77th Street and Cliff Avenue, from Samuelson Development.
• Foss Flats Senior Apartments, phase one, in the area of Veterans Parkway north of Sixth Street, from Developers & Associates Inc.
• Yukon at Benson Apartments, in the area of Benson and Marion roads, from Signature Cos.
• Atlas Apartments, phase one, at the Sanford Sports Complex, from Lloyd Cos.
• Linedrive Apartments, phase two, in the area of 41st Street and Veterans Parkway, from G&D Harr Construction.

“The market, as we know, is influenced by various external factors, and staying attuned to these dynamics is crucial for our members,” Hanzlik said. “The ever-evolving economic landscape and potential shift in what our consumers want necessitates a strategic approach to navigating the uncertainties.”