Tuesday, July 09, 2013

Reis: Apartment Vacancy Rate unchanged at 4.3% in Q2 2013

by Bill McBride on 7/09/2013 09:50:00 AM

Reis reported that the apartment vacancy rate was unchanged in Q2. The vacancy rate was at 4.8% in Q2 2012 (a year ago) and peaked at 8.0% at the end of 2009.

Some data and comments from Reis Senior Economist Ryan Severino:

Vacancy was unchanged during first quarter at 4.3%. While the rate of vacancy compression has been slowing in recent quarters, this marks the first time that the quarterly vacancy rate has not fallen since the first quarter of 2010. Over the last four quarters national vacancies have declined by 50 basis points, a bit slower than last quarter's year‐over‐year decline in vacancy of 70 basis points. This dynamic is somewhat to be expected ‐ as the market gets tighter and tighter, it becomes increasingly difficult for vacancy to continue falling at a high rate as vacant units, or at least palatable vacant units, disappear from the market.

The aforementioned stalling in vacancy decline is more a function of increasingly supply than decreasing demand. On the demand side, the sector absorbed 31,973 units in the second quarter, about on par with absorption from one year ago during 2Q2012 and down slightly from the 39,319 units that were absorbed during the first quarter of 2013. Year‐to‐date, the sector has absorbed more units in 2013 than were absorbed through this point in 2012. However, new construction is finally starting to pick up a bit. Completions during the second quarter were 26,584 units, an increase relative to last quarter's 16,578 units and slightly below the 29,523 units that were delivered during the fourth quarter of 2012. This appears to be the front end of the relatively large wave of new supply that is estimated to come online over the next few years.

Asking and effective rents grew by 0.6% and 0.7%, respectively, during the second quarter. This is a slight increase relative to the first quarter when asking and effective rents grew by 0.5% and 0.6%, respectively. However, during the last few quarters rent growth has slowed relative to the mini‐spike that was observed during mid‐2012
Apartment Vacancy Rate Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

New supply is finally coming on the market and the vacancy rate has stopped falling (at least for one quarter).

Apartment vacancy data courtesy of Reis.