Lots of Renters Balance Lots of New
Apartments
Jan 20, 2015
Bendix Anderson
Strong
demand for apartments helped keep the percentage of vacant apartments low, even
though developers finished many new apartments in 2014.
“We are
getting to the point where net absorption and construction kind of level,” says
Brad Doremus, an associate in the research and economics department at Reis
Inc., a data firm based in New York City.
The
percent of apartments that were vacant stayed at 4.2 percent in the fourth
quarter in the top 79 markets tracked by Reis. That’s the same as the vacancy
rate in the third quarter and it’s up slightly from 4.1 percent the year
before.
That’s
not bad, considering that developers were unusually busy in 2014. Apartment
pros have worried for more than a year that the vacancy rate would rise as new
apartments opened. The vacancy rate is expected to creep slowly upwards over
the next few years—though the rate will stay lower than 5 percent, according to
Reis.
Building
binge for apartment developers
Developers
finished 48,494 new apartments in the fourth quarter, adding up to a total of
161,518 new apartments in 2014, according to a tally of the top 79 apartment
markets kept by Reis. That’s the most apartments completed in any year since
2001. It’s also high above the historical average of about 130,000 apartments
completed a year from 1999 to 2007 in the 79 markets tracked by Reis. Reis had
expected developers to finish even more new apartments, though a few projects
were delayed and will now open in 2015.
Busy
2014 may just be the beginning—developers also started construction on a lot
off new apartments in 2014, which won’t be finished for another year or two.
The U.S. Census counted 340,000 multifamily starts in 2014—a large number, even
for the Census, which counted an average of 300,000 apartments completed a year
between 1996 and 2006 in the U.S. Reis expects the level of apartments finished
to stay high in 2015 and 2016
Demand
for apartments was very strong in 2014. The markets absorbed a net of about
161,000 units, slightly higher than the 160,000 units absorbed in 2013. “This
is probably the last time for a while it will be this high,” says Doremus. Reis
expect absorption to drop to 130,000 to 140,000 a year for the next few years.
“That’s still higher than anything between 2000 and 2009… though I think we are
past the peak of this exploding pent up demand,” says Doremus.”
Job
growth and the sheer number of young people reaching the prime ages to rent
apartments will keep demand from dropping further. “There seems to be less of
an interest in jumping into home ownership at an earlier period in life,” says
Mark Obrinski, chief economist for the National Multifamily Housing Council.
As a
result, demand for apartments will be strong—but not quite as strong as the new
supply coming online. That will continue to push the percentage of vacant
apartments higher than the current rate of 4.2 percent, a little bit at a time.
“It’s
definitely possible that the vacancy rate will creep into the mid- or upper-4-percent
range,” says Doremus. “We don’t expect new construction to crater the occupancy
rate.”