Wall Street Journal - Economy January 6, 2011
For Apartments, a Hot Winter
The nation's apartment market remained robust in the fourth quarter with vacancies falling below 7% for the first time in two years, according to new data.
The strong demand, which defied typical winter slowness, pushed the average national rent up for the fourth quarter in a row, a departure from the freebies and discounts landlords were using to find and keep tenants during the downturn.
The data were gathered from 82 major markets by Reis Inc., a New York-based research firm, which said the sector hit bottom in 2009's fourth quarter and that a strong recovery appears to be under way.
"People feel like the worst of times are behind them. Their prospects are going to improve," said Reis economist Ryan Severino.
Marcus & Millichap, an Encino, Calif., real-estate investment brokerage firm, was also bullish, expecting the sector to see a sweeping recovery and expansion nationwide.
"This year will mark the first across-the-board reduction in vacancy since at least 1990," driven by the release of pent-up demand, falling home-ownership rates and job creation, said Managing Director Hessam Nadji.
The improving occupancy rates also reflected the slowing pace of new development. In the fourth quarter, just 12,000 new units were completed, the lowest quarterly number in a decade, according to Reis.
But the sector's gains could be stalled or even reversed if the market weakens and employers don't add a substantial number of jobs. Job growth is essential to filling apartments because many would-be renters typically double up or move in with family members in weaker times.
Some industry watchers weren't worried. "The people who survived still have their jobs" and are less worried about losing them, said Alexander Goldfarb, an analyst following commercial real-estate companies for Sandler O'Neill + Partners LP, based in New York.
According to Reis data, the national apartment-vacancy rate was 6.6% in the fourth quarter, down from 7.1% in the third quarter and 8% in the fourth quarter a year ago.
The summer months are the prime apartment-rental season as students enter and exit college and families relocate in time for the new school year. Fewer moves typically take place during the winter months. But this year, occupied stock increased by about 58,000 units in the fourth quarter, the largest number of apartments taken during the quarter in a decade.
Effective rent, the amount paid after discounts, rose 0.5% to an average $986, led by a 1.5% gain in Syracuse, N.Y. Rent in Las Vegas, which saw rampant over-construction during the boom, dropped the most, with the average rate falling 0.6% to $774.
Rents increased in some markets hardest hit by the housing crash. Miami, Phoenix and San Bernardino/Riverside, Calif., registered modest gains. Overall, rent fell in five of Reis's major markets, indicating an "almost universal recovery," Reis said in its report.
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