Interesting Times

CRE News, 4-6-2010

Multifamily sector fundamentals are bouncing back after about two years of steady declines, according to Reis Inc.

The New York research firm reported that the sector's asking and effective rents both rose in the first quarter after dropping in the six preceding quarters, while its national vacancy rate held flat at 8% after increasing in the previous eight quarters.

Also, 20,424 multifamily units were absorbed in the first quarter, up 31% from the preceding quarter, and compares to a dismal full-year 2009 when the negative absorption, or the number of units that were made available exceeded new leasing activity by 6,296 units.

"The apartment sector may have indeed hit the bottom of the current business cycle and be on the path towards recovery," said Victor Calanog, Reis's research director. But he warned that a recovery would be slow and could be knocked off track by excessive construction.

For example, more than 22,000 units of newly built apartments came on line during the first quarter. And 52.8% of those were vacant.

"Still, this quarter's results taken as a whole are consistent with our expectation that the apartment sector will be the first to recover as the overall economy emerges from the recession," Calanog said.

The national average asking rent during the quarter rose 10 basis points to $1,027/unit, while the national effective rate, which factors in leasing concessions such as periods of free rent, rose 30 bp to $967. The faster pace of the effective rent gains implies that concession packages are no longer increasing and may be decreasing, Calanog said.

The first quarter rebound was widespread geographically and included both major markets as well as secondary and tertiary areas. For example, vacancy rates held flat or dropped in 49 of the 79 markets covered, including New York, with a 10 bp drop to 2.8%, and Phoenix with a 20 bp drop to 12.1%. Smaller markets include Hartford, Conn., whose rate held flat at 4.4%.

Effective rents rose in 65 markets, led by Miami, whose rate rose 1.6% to $1,008/unit, and Ventura County, CA, with a 1.3% gain to $1,346/unit. New York's effective rent rose 90 bp to $2,667/unit, by far the nation's highest.