Apartment sector on path to rebound: report

By Ilaina Jonas

NEW YORK (BestGrowthStock) – The U.S. apartment vacancy rate in the second quarter fell for the first time in nearly three years, a research report released on Thursday found.

But the report by the research firm Reis Inc also warned that new apartment buildings expected to be coming to market shortly could push the vacancy rate higher.

Nationally, the apartment vacancy rate fell to 7.8 percent in the second quarter from 8 percent in the first quarter, the report said.

“Unless there’s significant softness in the economic recovery, we may be safe to say that the apartment sector is well on its way,” said Victor Calanog, Reis director of research.

If the economy continues its lumpy improvement and demand outstrips new supply, U.S. apartment landlords could raise rents more than 4.6 percent next year, Calanog said.

Apartments, which suffered record-setting declines in 2009, are recovering from the U.S. recession and commercial real estate bust faster than other sectors of the industry. Reis reported the U.S. office and shopping center sectors continued to deteriorate in the second quarter earlier this week.

In the second quarter, asking rents rose 0.4 percent from the first quarter to a national average of $1,031 a month, the second consecutive asking rent increase. Factoring in months of free rent and other concessions, effective rents rose 0.7 percent to $973 a month.

The greater rise in effective rent signaled that landlords no longer feel they have to offer increasingly generous concessions and may be reducing them, Calanog said.

The optimism mirrors earlier comments by some of the biggest U.S. apartment landlords, including AvalonBay Communities Inc (AVB.N: ) and Equity Residential (EQR.N: ), which reported greater demand for their units.

Compared with leases for office spaces and stores, which often stretch for five or more years, the short-term leases for apartments quickly reflect market changes.

Corporations, which are tenants for both office and retail buildings, tend to delay hiring or expanding until they feel confident about a recovery. Individuals, with less to lose, react faster, Calanog said.

“In general, 12 months ago, when the world was ending, and it might take you over a year to find a job, you were not going to leave your parents’ apartment,” he said. “But now that it might take you from three-to-six months to find a job, you might feel confident enough to lease your own space.”

In New York City, the largest U.S. apartment market, vacancy ticked up 0.20 percentage point to 3 percent in the second quarter from 2.8 percent in the first. Including concessions, rent rose 1.4 percent to $2,700 per month, a greater jump than the 0.9 percent in the first quarter.

Nationally, despite the upward trend, newly constructed apartment buildings opened to an average vacancy of 57 percent in the second quarter, as landlords believed that renters would be willing to pay a 15 percent premium for a new building.

So far this year, about 57,000 new units have come to market, and another 40,000 or so are expected before the end of the year.

The new supply, coupled with an economic downturn could quash the sector’s recovery, Calanog said.

(Reporting by Ilaina Jonas, editing by Leslie Gevirtz)

Apartment sector on path to rebound: report