NEW YORK (Reuters) - The U.S. apartment vacancy rate in the first quarter fell to its lowest level in more than a decade, and rents posted their biggest jump in four years, as Americans eschewed home ownership and renting retained its popularity, according to real estate research firm Reis Inc.
The national vacancy rate fell 0.30 percentage points in the first quarter to 4.9 percent, the lowest level since the fourth quarter 2001, according to preliminary results Reis released Wednesday.
Meanwhile asking rents jumped by 0.5 percent from the prior quarter to $1,070 per month. Stripping away months of free rent and other perks designed to lure or retain tenants, effective rent rose to $1,018 per month, up 0.9 percent, the largest increase since the first quarter 2008, Reis said.
“I think that rent growth will accelerate this year,” said Victor Calanog, head of Research & Economics at Reis.
But that may be short lived. About 150,000-200,000 new units are expected be built next year. That supply likely will dampen rent growth next year, especially in cities such as Salt Lake City and Austin, where development is ramping up strongly.
“Once that supply hits the market next year, we may find that this is the year rent growth peaked,” he said. “It’s still going to be a great year for apartment landlords.”
The U.S. apartment market has been the best performing sector of commercial real estate over the past year, helped by the move away from home ownership. Even though it is now cheaper to own than to rent, with interest rates at record lows and inventories at record highs, most consumers are still shut out of the market altogether.
Nearly half of homeowners who have mortgages are either in foreclosure, delinquent on their mortgage payments, owe more on their mortgage than their house is worth or have less than 20 percent equity in their home.
On top of that, would be first-time homebuyers, are contending with record-levels of student debt at the same time as they are trying to raise down payments and meet lenders’ strict new guidelines to qualify for mortgages.
Young first-time buyers have also been the recipients of recent job growth numbers, swelling the demand for apartments.
That has helped landlords such as Equity Residential(EQR.N), Post Properties IncPPS.N, UDR Inc (UDR.N)and AvalonBay Communities Inc(AVB.N), which have large concentrations of high-end apartment buildings in urban areas.
Still, the increase in rent pales in comparison to the drastic fall in the vacancy rate, down from a cyclical high of 8 percent at the end of 2008, according to Reis.
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“Most of the big gains in performance are in occupancy,” Calanog said. “You’re actually not seeing very strong or robust rent growth at the national level. Once vacancies dip below 5 percent you should expect rent growth to be stronger than this.”
Outside the high-class properties in supply constrained urban markets, the effects of weak job creation and absence of wage growth is affecting rent.
“The vast majority of class B and C properties have been improving occupancy but are having difficulties in raising rents,” he said.
In New York City, the largest U.S. apartment market, the vacancy rate fell to 2 percent in the first quarter, below the cyclical low of 2.1 percent last seen at the end of 2007.
Rents there remained the highest of the 82 markets Reis tracks, at $2,885 a month, up 0.3 percent for the quarter. It tied with Birmingham, Greesboro/Winston-Salem, and Northern New Jersey, as posting the second lowest increase. Rents in Fairfield County, Connecticut, fell 0.1 percent to $1,786 per month.
On a yearly basis, San Francisco apartment rent increased the greatest at 5.9 percent. In the first quarter, it rose 1.2 percent to $1,888 a month.
The cheapest place to rent? Wichita, Kansas at $503 a month, up 1.1 percent for the quarter, according to Reis.
Reporting By Ilaina Jonas; Editing by Jeremy Laurence