by Bill McBride on 7/06/2016 01:01:00 PM
Wednesday, July 06, 2016
Reis reported that the apartment vacancy rate was at 4.5% in Q2 2016 to 4.5%, unchanged from Q1, and up from 4.2% in Q2 2015. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.2% in 2014 and early 2015.
A few comments from Reis Senior Economist and Director of Research Ryan Severino:
The national vacancy rate was unchanged at 4.5% during the second quarter. However, this was merely due to rounding as demand simply cannot keep pace with the volume of new construction hitting the market. Given the trend over time for increased construction volume and limited demand, vacancy should increase steadily over time. This increase in vacancy is heavily concentrated in the newer properties that are coming online which are having a more difficult time securing tenants, either from the pool of new renters or from the pool of renters in other buildings. The vacancy rate for newly completed properties has been increasing dramatically over the last 12 to 18 months. This is a far cry from just a couple of years ago when the majority of new properties were arriving on the market stabilized or fully occupied.Click on graph for larger image.
Asking and effective rents both grew by 0.9% during the second quarter. This is a rebound from the significant pullback that occurred in quarterly growth rates during the first quarter, though that was likely due to seasonal effects. However, the rising vacancy rate is clearly taking the wind out of landlords' sails, especially for the new completed properties. Concessions are slowly creeping back into the market and newly completed properties are struggling to hit pro forma rents. As vacancy continues to inch higher, it will put continued downward pressure on rent growth.
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.
This suggests rent growth - and multi-family starts - will slow.
Apartment vacancy data courtesy of Reis.