A Bump in the Road for Apartments?

January 30, 2014

The national vacancy rate for multifamily properties at the end of 2013 was at 4.1 percent, a drop of 50 basis points compared to 2012, Reis Inc. reports.

“While that represents one of the tightest vacancy rates we’ve seen in the last decade or so, things clearly seem to be slowing down for the multifamily sector,” says Victor Calanog, vice president of economics and research at Reis.

Even though occupancy rates improved in 2013, national vacancies are 380 basis points below the cyclical peak. Also, effective rents in 2013 topped out at 3.2 percent growth, a healthy increase, Calanog points out, but less than the 3.9 percent growth seen in 2012. Effective rent growth was positive in 79 out of 82 markets.

“We topped all historical standards on effective rents, and we are at all-time highs,” Calanog says. “But median household wages haven’t really increased that much, so it throws into doubt whether landlords can keep raising prices.”

Calanog says that Reis is forecasting a bump in supply growth for the multifamily sector in 2014 and 2015. He also says the vacancy rate will probably begin rising and effective rents will start to taper next year.

“The apartment sector is healthy, but just don’t expect projections of net operating incomes that are growing by double-digits for the next five years,” Calanog says.

Source: Reis Inc.

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