Apartment landlords are enjoying rising rents and falling vacancies.
The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.
Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.
Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.
“Rising rents and falling vacancies are the perfect situation for landlords,” said Rich Anderson, an analyst for BMO Capital Markets. “It’s like drinking without the hangover.”
But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net “absorption” rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.
“When you’re going from big numbers and getting gradually smaller it’s tough to determine if things are in fact cooling,” says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.
Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.
But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.
But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. “Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011,” Reis wrote in the report. “Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the y (credit w, lowery, wsj)