Has the Apartment Sector Reached Its Peak?

April 19, 2016

Developers are building more apartments than there are renters to fill them, reports the National Real Estate Investor. The number of vacant apartments is growing, and rents are finally showing signs of growing at a slower pace.

“The gap between demand and supply in the first quarter was a little larger than anticipated,” Greg Willett, chief economist for market intelligence firm MPF Research, told the National Real Estate Investor.

The number of occupied apartments increased by 20,077 during the first quarter of this year – less than half the 40,000 to 50,000 new occupied units the industry has been seeing over the last few years, according to MPF’s data.

“Uncertainty about the nation’s near-term economic outlook appears to be constraining new household formation and demand for all forms of housing,” says Willett. “The slight backtracking seen in the first quarter is significant because it runs counter to the normal pattern of seasonality in performance statistics.”

Regardless of vacancy increases, landlords are still raising their rents. Apartment rents increased 0.9 percent in the first quarter. However, the pace has slowed considerably from the 5 percent growth the year prior, according to MPF.

Over the last 12 months, developers have opened 200,142 new apartments. That is the highest number of apartments opened in any 12-month period since 1988, according to Reis. About one-third of the apartments to be delivered this year are in Dallas/Fort Worth, Houston, New York City, Seattle-Tacoma, and Washington, D.C., according to the brokerage firm Marcus & Millichap.

Source: “Demand for Apartments Slowing Down,” National Real Estate Investor (April 12, 2016)