(Why I Think Multifamily Will Stay Strong) via NREI

Apartments pictured are representative. Not the actual complex

Why I Think Multi-Family Will Stay Strong.

The multifamily sector continued its torrid run as vacancy rates fell by 30 basis points in the first quarter down to 4.9 percent, according to real estate research firm Reis Inc. The last time the vacancy rate was this low was more than 10 years ago in the fourth quarter of 2011.

According to Reis, “It is also significant to note that national vacancies have improved beyond the benchmark 5 percent level used as a rule of thumb by apartment landlords: for most markets, once vacancies tighten below 5 percent, effective rents tend to spike as landlords perceive that tight market conditions allow for greater pricing power. With overall vacancies below this level, expect rent growth to accelerate even more.”

Net absorption, or the net change in occupied stock, remained strong, with 36,484 units leasing up.

Asking rents rose 0.5 percent from the fourth quarter of 2011 and are up 2.2 percent year over year. Effective rents, meanwhile, are up 0.9 percent from the fourth quarter and 2.7 percent from last year.

Supply conditions are boosting the sector’s performance. Only 7,342 apartment units came online in the first quarter – the lowest quarterly figure for new completions since Reis began publishing quarterly data in 1999.

However, “[w]ith multifamily remaining one of the few shining starts in commercial real estate, developers have begun building properties to take advantage of rising incomes,” according to the firm. It estimates that 70,000 units will come online in 2012—about twice as many units as came online in 2011. And the pipeline is fattening with even more units slated to open in 2013, between 150,000 and 200,000 in the 79 markets Reis tracks.

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Filed under Commericial Real Estate Articles & News, Investment Real Estate

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