Apartment Rental Vacancies Rise Across the Nation

July 10th, 2009 by Matt DiChiara| Posted in Apartment Market Info | 3 Comments »

Fueled by the climbing unemployment rate, vacancy rates in the nation’s apartment buildings have risen to their highest rate since 1987. The national vacancy rate reached 7.5 percent in the second quarter, up .2 percent from the previous quarter and 1.4 percent higher than Q2 2008.

The speed that the vacancy rate is approaching the all time high (7.8 percent in 1987) is especially worrisome; it was only 2006 when the only 5.5 percent (that cycle’s trough) of apartments for rent were vacant.

As a result, Q2 asking rents fell .7 percent from a year ago to $1,040 a month, the bulk (.6 percent) of that drop occurring in the second quarter. Effective rents fell even further, down 1.9 percent to $975, that decline spurred on by apartment management companies offering concessions to renters. Effective rents dropped almost 1 percent from the first quarter to the second in 2009.

Reis, Inc, who conducted the study, expects more than 100,000 units from new construction to add to the rental inventory by the end of the year, which, along with unemployment rates softening demand, will keep vacancies high and rents low.

Regional and Demographic Trends

Earlier this week we mentioned housing statistics from the Census Bureau (which include both the rental and for sale markets) showed a higher growth rate for urban areas than in suburban areas. While the national rental market figures are useful as macroeconomic indicators of the economy as a whole, they don’t exactly provide insightful information for apartment management companies in terms of their respective markets.

Below is chart with projections from the Jackman Group for 2009:

According to the LA Times, the effect of the high vacancy rate is visible to anyone walking down the street, even traditionally popular areas. Landlords are dropping rents and making concessions for Westwood apartments and apartments in Redondo Beach, trying to keep their units occupied.

The only apartments in Los Angeles where rents haven’t gone down are those apartments near UCLA, where demand is buttressed by college students. Also, UCLA, with a high percentage of graduate students will probably have more students than during years where the job market was stronger, as young professionals take the opportunity to go back to school.

With almost 2,000 units in the construction or planning phase this year and rampant job losses, Greenville apartments‘ vacancy rates have risen high above the national average at 12.5 percent.

There are a few bright spots, however. Apartments in Columbus, Ohio, are currently enjoying their lowest vacancy rates in years, investors are beginning to buy up Orlando apartments again and renters moved into Atlanta apartments in volumes that far exceeded previous quarters.

What is going on in your market? Are you seeing a higher demand for urban apartments over suburban buildings?

Does the reported increase in the difference between asking rents and effective rents make sense in terms of concessions that are offered to renters?