Even the most pessimistic apartment market researchers agree that very few apartments were empty in the third quarter and that the vacancy rate in the multifamily rental sector will remain low in the short-term.
“Vacancy expansion will not be dramatic—there is far too much demand,” says Ryan Severino, senior economist and director of research with Reis, Inc., a New York City-based research firm. “Vacancy will marginally drift higher.”
That’s what pessimism sounds like in today’s apartment market. Reis warns that the vacancy rate—which is very, very low—has started rising and will continue to increase as more new apartment units will become available later this year. The firm also predicts that this year will end with the strongest average calendar-year rent growth since 2007. Other researchers say the vacancy rate is still dropping.
The vacancy rate for apartment properties rose to 4.3 percent in the third quarter, up 10 basis points from the second quarter and unchanged from one year ago, according to Reis. “Slowly, but surely construction is overtaking net absorption by a wider and wider margin and is nudging the national vacancy rate slightly higher,” says Severino.
So far, developers have opened 127,000 new apartments in 2015, roughly the same as in 2014.
“We still anticipate that over 200,000 new units will be delivered during 2015. That means tens of thousands more units should hit the market during the usually slow fourth quarter,” says Severino. Those new apartments are likely to open faster than new renters will line up to move in, pushing the vacancy rate towards 5 percent.
Optimism from other data firms
Other data firms claim that vacancy rate continued to fall in the third quarter, but even researchers at those firms believe that the vacancy rate will likely inch higher over the next few years. The vacancy rate fell to 4.0 percent in the third quarter, down from 4.1 percent at the beginning of the year, according to Apartments.com’s data on the top 50 apartment markets in the country.
“Demand continues to be stronger than many had thought at the beginning of the year,” says Luis Mejia, chief multifamily economist for the CoStar Group. So far, 2015 has seen a substantial improvement in the job markets, but for-sale housing continues to provide little effective competition for apartments. “Everyone expected the economy and recovery to be stronger and the transition to homeownership to be much faster.”
However, Mejia notes the vacancy rate will rise eventually, slowly reaching 4.5 percent over the next few years.
Demand for apartments also continues to strengthen according to data firm Axiometrics. “The national apartment market had its strongest summer in nine years and continued its phenomenal 2015,” says Stephanie McCleskey, vice president of research for Axiometrics. The percentage of occupied apartments reached 95.3 percent in the third quarter, the highest the occupancy rate has been in 15 years.
Like CoStar, Axiometrics credits a strong labor market, plus weak competition from single-family homes.
“The strength is widespread nationwide,” says McCleskey. “Job growth is better in all regions, and single-family home prices keep rising.”