by Bill McBride on 1/06/2016 11:57:00 AM
Wednesday, January 06, 2016
Reis reported that the apartment vacancy rate increased in Q4 2015 to 4.4%, up from 4.3% in Q3, and up from 4.3% in Q4 2014. The vacancy rate peaked at 8.0% at the end of 2009, and appears to have bottomed at 4.2%.
A few comments from Reis Senior Economist and Director of Research Ryan Severino:
Fourth quarter data provides yet more evidence that the national vacancy rate has already bottomed out and is set to keep increasing. As we noted last quarter, vacancy technically started rising during the second quarter of 2014, but had fallen back before bottoming out again during the second quarter of 2015. However, the national vacancy rate has now increased for two consecutive quarters. This marks is the first time that has happened since the fourth quarter of 2009 and truly represents a turning point in the apartment market. With construction outpacing demand the national vacancy rate should slowly drift higher over the coming years.Click on graph for larger image.
Vacancy once again increased by 10 basis points to 4.4% during the quarter with construction slightly outpacing net absorption. While demand and supply had been largely in balance between mid-2013 and mid-2015, that has started to change over the last two quarters. Gradually, construction is overtaking net absorption by a wider margin, putting increasing upward pressure on vacancy. During the second quarter construction exceed demand by 3,471 units. During the third quarter that difference had risen to 12,350 units and during the fourth quarter it registered 15,263 units. With construction continuing to increase and net absorption generally stabilizing, this rift should continue to widen over time putting further upward pressure on the national vacancy rate.
Asking and effective rents both grew by 0.8% during the fourth quarter. This was a bit slower than the scorching performance during the last two quarters, but still represents an annualized rate in excess of 3%, well ahead of even core inflation. This slight pullback is not entirely unexpected due to the seasonality typically observed in the apartment market - apartment rent growth tends to be strongest during the two middle quarters of the calendar year when people have a propensity to move while the weather is more conducive and children are out of school. The slight pullback in rent growth during the fourth quarter is more of a testament to how strong rent growth was during those two middle quarters than any weakness exhibited during the fourth quarter....
On a calendar-year basis, rent growth continues to accelerate. Asking and effective rents grew by 4.5% and 4.6%, respectively, during 2015.This is greater than 2014's growth rates of 3.7% and 3.9% for asking and effective rents and is the strongest performance during a calendar year since 2007 before the recession. The low vacancy rate, improving economy, tightening labor market and gradually rising income growth is providing all of the fodder for continued rent growth, even in the face of rising construction.
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.
The vacancy rate had been mostly moving sideways for the last few years. Now that completions are catching up with starts, the vacancy rate has started to increase.
Apartment vacancy data courtesy of Reis.