Housing crunch boosts apartment demand

By Ilaina Jonas

NEW YORK (Reuters) - The U.S. apartment market remained relatively stable in the first quarter, as the collapse of the housing market generated demand that helped offset a spike in condominiums available for rent the Southeast, real estate research firm Reis said on Thursday.

"The apartment markets are benefiting from the deterioration in housing and a larger pool of potential renters," Sam Chandan, Reis chief economist said in a statement.

"Potential buyers see renting as an increasingly attractive alternative" given their wavering confidence that the housing market has hit bottom, he said.

Overall, the U.S. apartment market saw stronger demand for rentals. But in many Southern markets, such as Jacksonville and Orlando in Florida, for-rent homes and condominiums competed for tenants.

Seasonality and an onslaught of condominium completions helped push the national apartment vacancy rate up 0.30 percentage points from the prior quarter to 5.9 percent, Reis said. Vacancy in the Sunbelt area rose a full percentage point.

But compared with a year earlier, the U.S. apartment vacancy rate fell 0.10 percentage points.

Slower growth in the pool of renters due to a downturn in the economy and job market was partially offset by rising demand from potential home owners who opted instead to rent.

"This economic issue will be a factor in the second and third quarters as some new college graduates fail to find jobs and move home, at least temporarily, instead of into apartments," Chandan forecast.

Asking rent rose 1 percent from the prior quarter to $1,036 a month. But when months of free rent needed to lure tenants was factored in, the rise in effective rent was smaller, up 0.9 percent to $984.

"However small, this is the first increase in concessions at the national level since the first quarter of 2004 and is driven largely by discounting in Florida," Chandan said.

The rise in apartment demand has helped boost stocks of apartment real estate investment trusts both large and small.

AvalonBay Communities Inc shares are up nearly 11 percent this year. Equity Residential shares have risen nearly 20 percent.

Mid-America Apartment Communities Inc shares are up about 27 percent in 2008, while BRE Properties Inc shares have gained 24 percent and Essex Property Trust Inc is up 22 percent.

(Editing by Andre Grenon)