Tags: Apartment | Vacancy | Rate

Apartment Vacancy Rate Drops Sharply in Third Quarter

Wednesday, 06 Oct 2010 02:37 PM

The U.S. apartment market recovery was in full swing in the third quarter as vacancies dropped sharply and rents increased because tenants signed leases in belief they would shortly find jobs.

The national vacancy rate fell to 7.2 percent from 7.8 percent in the second quarter as renters soaked up 84,382 more units than were vacated, according to preliminary figures that real estate research firm Reis released Wednesday.

"I think that a lot of people are very forward looking when it comes to the job market," said Victor Calanog, Reis director of research.

"They're willing to sign one-year leases and take a bet that they'll find a job in the next six to nine months."

This reverses last year's trend when many would-be tenants either moved in with their parents or took roommates.

The only other time Reis recorded a similar plunge in vacancies was in the third quarter of 2005, when owners converted rentals into condominiums during the housing boom. But renters are still price conscious and shunned higher rents in new buildings.

About 90 percent of the newly rented units were in existing buildings, Reis said.

Rents continued to tick upward during the third quarter. Asking rents rose 0.5 percent over the second quarter to $1,037 per month, Reis said.

Factoring months of free rent and other concessions landlords used to lure tenants, effective rent was up 0.6 percent to $980 per month, Reis said.

"The faster pace of effective rent increases versus asking rents implies that concession packages are no longer increasing and may in fact be tightening," Calanog said.

That may bode well for large apartment owners such as Equity Residential and AvalonBay Communities, which scaled back construction last year and whose properties are located in dense, strong markets.

Effective rent in 72 of the 82 of the markets Reis tracks rose in the third quarter.

New York City led the way with rent rising 2.2 percent in the third quarter, to $2,756 per month, despite vacancies rising to 3.6 percent from 3.1 percent.

At the other end, rent fell in 10 markets including Las Vegas and Detroit, and the Florida areas of Fort Lauderdale, Miami and Jacksonville.

Reis expects next year to be even stronger when only 50,000, or about half of this year's total of new apartments, are expected to open.

But strong rent increases that usually accompany a tight supply will likely occur only in certain markets, Calanog said.

Houston, New York, San Francisco, San Antonio, Omaha Nebraska, and possibly Atlanta may see strong rent increases next year as construction activity drops 50 percent.

Little construction activity is expected next year in Phoenix and California's Orange County and San Bernardino, where weak economies and poor housing markets may limit apartment demand and rent growth.

Yet rent pops in 2011 may be short-lived. More than 150,000 apartment units are slated to open in 2012. Reis does not expect a strong sustainable rent growth until 2014.

© 2017 Thomson/Reuters. All rights reserved.

 
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The U.S. apartment market recovery was in full swing in the third quarter as vacancies dropped sharply and rents increased because tenants signed leases in belief they would shortly find jobs. The national vacancy rate fell to 7.2 percent from 7.8 percent in the second...
Apartment,Vacancy,Rate
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2010-37-06
Wednesday, 06 Oct 2010 02:37 PM
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