* Q3 vacancy falls to lowest level in more than 5 years
* Q3 rent up 0.7 percent over Q2
* Q3 rent increases 2.4 pct year over year
By Ilaina Jonas
Oct 6 Americans continued to shun home
ownership in the third quarter and construction remained tight,
fueling rent increases and pushing the average apartment
vacancy rate to its lowest level in more than five years,
according to real estate research firm Reis Inc.
The third-quarter U.S. vacancy rate dropped to 5.6 percent
from 5.9 percent in the second quarter, approaching its lowest
level since mid-2006, when vacancy hit 5.5 percent, Reis said
in a report released on Thursday.
The U.S. apartment market has been one of the two best
performing sectors of commercial real estate over the past
year, helped by the move away from home ownership and by job
growth among young people who were confident enough to move out
of their parents' homes or ditch their roommates, the report
said. Hotels have been the other top performing segment.
The average asking rent climbed 0.6 percent to $1,059 per
month. Factoring out months of free rent and other perks
landlords offer to lure tenants, effective rent rose 0.7
percent to $1,004 a month, according to Reis. Effective rent
was 2.4 percent higher than a year ago, growing more robustly
than asking rent, which was up 2.1 percent, and indicating that
landlords no longer felt as compelled to offer perks.
During the third quarter, increasing rents were pervasive,
with 81 of the 82 markets that Reis tracks posting higher
effective rents. Only Las Vegas bucked the trend, posting flat
"Multifamily has really good fundamentals," Reid Liffmann,
managing director of alternative investment advisor Angelo
Gordon & Co, said on Wednesday, speaking at the iGlobal Forum
Real Estate Private Equity Summit in New York.
"There's a lot of reasons why multifamily is working well,"
he said, citing the move away from home ownership. "We have
bought multifamily selectively," he said.
The trend is expected to help apartment owners such as
Equity Residential (EQR.N), AvalonBay Communities Inc (AVB.N)
and UDR Inc (UDR.N).
For related graphics on the U.S. apartment market
please click on: link.reuters.com/raf34s
New construction remained constrained as only 8,183 units
came to market, the second-lowest level since Reis began
tracking the apartment market in 1999. The lowest was in this
year's first quarter.
"With continued tightness in new supply in 2011, we expect
vacancies to continue to decline throughout the remainder of
the year as households favor the rental market," Reis senior
economist Ryan Severino said in a statement.
New interest in apartment construction will not translate
into livable units until late next year, he said.
Still, some investors are wary that apartment building
prices may have gone too far and the sector in some markets
eventually will fall victim to overzealous developers.
"There will be select markets, as in past history, that
will get overbuilt quicker than expected," Liffmann said.
But in the land-constrained market of New York City, the
largest U.S. apartment market, the vacancy rate edged lower to
2.6 percent in the third quarter from 2.7 in the second
quarter, Reis said. The slight drop in vacancy was enough to
trigger a surge in rents, up 1.2 percent in the third quarter
to $2,859 a month.
Although it pales in size compared with New York, New
Haven, Connecticut, remained the tightest market at 1.9
percent, buoyed by a large student population, including from
Yale University. New Haven's average rent rose 1 percent over
the second quarter to $1,101 per month.
(Reporting by Ilaina Jonas; Editing by Gary Hill)