Apartment Vacancies in U.S. Fall to Three-Year Low as Rental Demand Climbs

U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand in what is usually a slow period for rentals, according to Reis Inc. (REIS)

The vacancy rate declined to 6.2 percent from 8 percent a year earlier and 6.6 percent in the fourth quarter of 2010, the New York-based research firm said in a report today. The rate was the lowest since it reached 6.1 percent in the second quarter of 2008.

Unemployment of close to 9 percent and a surge in home foreclosures have pushed many people to rent, driving a rebound in multifamily properties during the past year. Construction of apartments has climbed from a 50-year low on expectations that rents will increase and more people will seek to lease.

“There is a bias against homeownership at this point, especially if you feel home prices won’t rise and you can wait,” Victor Calanog, chief economist at Reis, said in a telephone interview. “Most of the applications for construction and building loans are for multifamily buildings.”

Apartment owners had a net increase in occupied space of more than 44,000 units, the most for a first quarter since 1999 and almost double the number from a year earlier, Reis said. The first quarter tends to be a slow period for rentals since more leases are signed in the warmer months, the company said.

About 6,000 units came to market during the first quarter, the fewest since Reis began compiling data in 1999.

Rents Increase

Effective rents, or what tenants actually pay, increased in 75 of the 82 markets Reis tracks, to an average $991 a month from $967 a year earlier and $986 in the fourth quarter. Landlords’ asking rents also climbed, to $1,047 from $1,027 a year earlier and $1,043 in the previous quarter, according to the report.

Homeownership Declines

With the foreclosure rate at a record 4.63 percent in the fourth quarter, thousands of homeowners have been forced into apartments. Homeownership in the U.S. dropped from a peak of 69.2 percent in 2004 to 66.5 percent at the end of 2010, with each percentage point representing about 1.1 million households, according to the Census Bureau.

Developers have stepped up rental projects in anticipation of rising demand. AvalonBay Communities Inc. (AVB), the second-biggest publicly traded U.S. apartment owner, started 11 developments in 2010 with a combined 2,446 apartment units.

Still, new construction has been uneven. Starts on multifamily homes, including townhouses and apartments, tumbled 46 percent in February to an annual rate of 104,000, after reaching a two-year high in January, the Commerce Department said March 16.

Article written by Hui-yong Yu for Bloomberg.com
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