Apartment markets around the country vary dramatically as a result of such local factors as population growth, job creation and new construction. This report summarizes researchers’ local forecasts for markets in 20 major U.S. cities in 2006, using information provided by Marcus & Millichap, MP/F YieldStar, Reis and Sperry Van Ness, which has recently expanded its research arm.

– Information compiled by Bendix Anderson and Marcie Geffner

ATLANTA is a “wild card,” said Greg Willett, vice president of research and analysis at MP/F YieldStar. The vacancy rate is forecast to hover at 8-9%, one of the highest levels among the 20 cities in this survey. Job growth is expected to be stronger than it was in 2005 in this city of 4.9 million people. Condominium conversions are on the rise, and the upscale Buckhead and nearby Midtown submarket are expected to appeal to investors and renters alike, according to M&M. Reis forecasts a 1.2% increase in effective market rents to an average of $739 a month. Forecasts for the number of completions in 2006 range from 3,470 units, or 1.01% of the rental inventory according to Reis, to 4,300 units according to Sperry Van Ness. MP/F YieldStar Grade: C

BALTIMORE is likely to continue to be a steady performer, Willett said. This city of 2.7 million people has a forecasted vacancy rate in the neighborhood of 4.6%. Reis forecasts a 4.1% rise in effective rents, to an average of $888 per month, which is one of the highest anticipated percentage gains in this survey. Experts are counting on job growth between 1.2% (MP/F) and 2% (M&M). Builders will finish 1,766 new apartments, increasing the inventory by 1.33%, according to Reis. Sperry Van Ness predicts even more: 2,500 new units in 2006. MP/F YieldStar Grade: B

BOSTON is a steady performer, and investors are paying a premium for condo conversion deals, despite signs that this sector may be cooling, according to M&M. The vacancy rate is forecast to be as low as 4.8% (M&M) or as high as 5.7% (Reis). Reis expects an effective rent gain of 2.8% to an average monthly effective rent of $1,543, the second highest rent in this survey after New York. Developers are building at “an incredible pace,” Willett said, with significant new construction in the South Shore submarket. Developers will finish 5,265 new apartments, adding 2.84% to existing rental inventory, according to Reis. Sperry Van Ness forecasts only 3,100 new units. Employment growth in this city of 4 million people is forecast to be between 1.1% and 2%. MP/F YieldStar Grade: C

CHICAGO is “making solid progress,” Willett said. Chicago’s vacancy rate is expected to be 5.4% (Reis) or 5.8% (M&M). Rent growth is expected in the metro area, and Chicago already enjoys stronger demand for apartment units than other Midwest cities due to in-migration of new residents. Reis forecasts effective rent growth of 3.1% to an average of $931 a month as concessions burn off. Builders should complete 2,114 rental housing units, or 0.47% of the rental inventory, according to Reis. Sperry Van Ness forecasts 2,200 completions. The forecast for job growth for this city of nearly 8 million residents ranges from 1.5% (M&M) to 1.8% (MP/F). MP/F YieldStar Grade: B

DALLAS is not as far along in total recovery as other markets are, Willett said. Yet it could show strong improvement due to employment growth, forecast to be 2.5% (M&M) or 2.8% (MP/F). New construction is expected to slow as labor and materials are diverted to Hurricane Katrina-related rebuilding, according to M&M. Fewer completions in this city of 4 million people and smaller rent concessions could help the average effective rent growth reach 2.7%. Forecasts for the number of completions range from 3,500 units, or 0.94% of the rental inventory, according to Reis, to 4,000 units according to Sperry Van Ness. A projected vacancy rate of more than 9% and relatively very affordable single-family ownership housing could offset those positive factors. MP/F YieldStar Grade: B

DETROIT hit the bottom on M&M’s list of 42 markets ranked in terms of potential improvement in net operating income of apartment buildings, according to Linwood Thompson, managing director of the brokerage company’s multifamily housing group. The city also is the only market in this survey for which MP/F YieldStar has predicted 2006-07 revenue growth in negative territory. This city of 4.6 million people is struggling with a weak job market that’s expected to grow less than 1%, if at all. The forecast vacancy rate is around 6.6%. Developers will open 1,351 new rental units in this difficult market, a 0.71% addition to the rental inventory, according to Reis. Single-family homes also compete with apartments and are very affordable. MP/F YieldStar Grade: C

HOUSTON’s apartment market has strengthened as Hurricane Katrina victims have poured into this city of 5.4 million people. Reis predicts a vacancy rate of 6.4% in 2006 – that is still relatively high and many of the newcomers may return to New Orleans and other cities. But experts say vacancies may still decrease as construction slows and employment growth rebounds to 2.5% (M&M) or 3% (MP/F). Forecasts for the number of completions range from 5,337 units, or 1.22% of the rental inventory according to Reis, to 4,700 units according to Sperry Van Ness. Reis forecasts effective rent growth of 2.9% and an average effective rent of $676 per month. MP/F YieldStar Grade: A

LOS ANGELES, a city of more than 10.1 million residents, is an attractive apartment market as single-family ownership housing faces affordability constraints. Demand for rentals is expected to exceed supply even after the effect of new construction, giving owners an opportunity to raise rents, according to M&M. A forecast vacancy rate of around 3.3% should push the average effective rent to $1,273 monthly, a 3.5% rise, according to Reis. MP/F YieldStar predicts strong 2006-07 revenue growth of 5.2%. Forecasts for the number of completions range from 4,457 units, or 0.59% of the rental inventory according to Reis, to 5,250 units according to Sperry Van Ness. The Westside cities, east San Fernando Valley, and Glendale and Burbank submarkets are expected to prosper. MP/F YieldStar Grade: A

MIAMI’s condominium conversion craze will continue to be a factor in its apartment market, even if this activity slows, because conversions have reduced the supply of rental housing in this city of 2.4 million people. A growing population base and modest employment growth of 2% also should help the city achieve the forecast vacancy rate of approximately 3.8%. Forecasts for the number of completions range from 1,845 units, or 1.51% of the rental inventory according to Reis, to 1,700 units according to Sperry Van Ness. A key risk factor is whether a high proportion of apartment-converted condos will be turned into investor-owned rental units, a trend that would increase the supply of rental housing. MP/F YieldStar Grade: A

MINNEAPOLIS has been struggling, but fundamentals are improving in this Midwestern city, Willett indicated. New jobs in education, and health, professional and business services are forecast to create employment growth of approximately 2.2%, according to M&M, which also sees a decline in the vacancy rate to 6% and a 3.7% increase in average effective monthly rents. Reis expects a vacancy rate of 5.5%. Owners are expected to scale back concessions in the Eden Prairie and Bloomington submarkets due to job growth in this metropolitan area of 3.2 million residents. Forecasts for the number of completions range from 957 units, or 0.63% of the rental inventory according to Reis, to 1,250 units according to Sperry Van Ness. MP/F YieldStar Grade: B

NEW YORK CITY: Manhattan’s apartment market should experience robust demand, despite an up-tick in completions, according to M&M. Builders will finish 3,386 new rental units in 2006, or 2.28% of the rental inventory according to Reis. Sperry Van Ness forecasts 3,150 unit completions. M&M pegs the year-end average asking rent in Manhattan at $3,148, almost double the next-highest figure in this survey in Boston. Reis forecasts a vacancy rate of 3.7% and an increase in the average effective rent citywide to $2,420, a rise of 3.7%. Employment growth in this city of 8.5 million residents is expected to be 1.6%. New York is one of the top ranked on M&M’s list of cities ranked by net operating income growth potential. MP/F YieldStar has not graded this market

ORANGE COUNTY is the best market in the country on M&M’s list, Thompson said. Market characteristics include severe affordability constraints in the single-family ownership housing market, anticipated employment growth of 2.2% or better, and a forecast vacancy rate of 3.2% (MP/F) or 3.5% (Reis). Many new jobs will be in the leisure and hospitality sectors, where salaries aren’t high enough for workers to purchase their own homes. Reis predicts a very strong 4.5% rise in the average monthly effective rent to $1,384. Irvine has been a notably strong submarket in this county of more than 3 million people. Orange County will receive 1,372 new rental units in 2006, a number equal to just 0.69% of the rental inventory according to Reis. MP/F YieldStar Grade: B

PHILADELPHIA was a surprisingly strong performer in 2005 as the market absorbed a significant number of new condominiums, Willett said. Yet the apartment market in this city of 5.2 million residents isn’t necessarily poised for new heights. MP/F YieldStar forecast employment growth of less than 1% and 2006-07 apartment revenue growth of just 1.4%, the third lowest figure in this survey after Detroit and Atlanta. Reis predicts a vacancy rate of 4.4% and an effective monthly rent boost of 3.2% to $923 on average. Developers will complete 1,484 new apartments, growing the rental inventory by 0.74%, according to Reis. The Center City and Camden West submarkets are on the upswing, according to Marcus & Millichap. MP/F YieldStar Grade: B

PHOENIX is expected to be a strong apartment market, despite significant new construction and a vacancy rate of 7.6%, according to Sperry Van Ness. This city of nearly 4 million residents is growing rapidly, adding some 8,000 people per month. Developers will complete 3,675 new apartments for these new residents, growing the inventory by a whopping 1.44%, according to Reis. Employment is expected to increase 3.9%. Reis forecasts a moderate 3.2% rise in effective rents to an average of $669 per month. Rising home prices are cramping affordability of single-family ownership housing, another plus for the apartment sector. Investors still favor the upscale Scottsdale area, according to M&M. MP/F YieldStar Grade: A

SAN BERNARDINO/RIVERSIDE, home to 4.1 million people, is expected to be a top-performing market due to population growth, strong employment growth and demand for rental units. Those factors should offset new construction, which is concentrated in the North Riverside and Rancho Cucamonga submarkets, according to M&M. Builders will finish 2,900 new rental units, according to Sperry Van Ness – that’s more than a 2% addition to the rental stock. New jobs are anticipated in the leisure and hospitality and professional and business services sectors. Reis predicts average effective rent growth of 4.6%, the largest rise among the cities in this survey, and a vacancy rate of 4.3%. MP/F YieldStar Grade: B

SAN DIEGO has one of the tightest rental markets in this survey. The vacancy rate, forecast to be just 3.2%, is expected to push effective rents up 5.5% to $1,240 per month on average, according to M&M. The rental market will be helped by the rising cost of a single-family home and employment growth that could reach 2.3% (MP/F) or even 2.8% (M&M) in this city of 3 million residents. New housing supply is coming on strong; much of the new construction is concentrated in the downtown San Diego submarket. Builders will finish 2,000 new rental units in 2006, according to Sperry Van Ness. MP/F YieldStar Grade: B

SAN FRANCISCO, home to 1.7 million residents, is on the move. Rents are aggressively on the rise in the city proper, after substantial cuts in prior years, Willett noted. MP/F YieldStar has predicted 2006-07 apartment revenue growth of 9%, significantly higher than any other locale in this survey. Reis pegs the vacancy rate at 4.4% while M&M predicts a more bearish figure of 5.6% at year-end. Employment growth is expected to be 1.2% (MP/F) or 1.8% (M&M). San Francisco is one of the nation’s least affordable markets for single-family ownership housing. Also, developers will complete just 995 new apartments in the city in 2006, a 0.73% addition to the inventory, according to Reis. MP/F YieldStar Grade: A

SEATTLE has taken some big strides due largely to population growth and job creation, according to M&M. Employment growth in this city of 2.5 million people is forecast to be 2.4% (MP/F) or 2.9% (M&M). The vacancy rate is expected to drop as low as 5.7%, the lowest level since 2000, due to population growth, economic growth and rising single-family home prices, according to Reis. New apartments totaling 2,500 units should enter the market in 2006, according to Sperry Van Ness. Reis predicts that modest effective rent growth of 2.7% will boost the average monthly effective rent to $845. MP/F YieldStar Grade: B

TAMPA has a robust economy, strong in-migration and a relatively tight rental market, despite an expected vacancy rate of 5.1% (M&M) or 6.2% (Reis). Job market growth of 4.2% (M&M) or 4.8% (MP/F) is forecast for this city of 2.7 million people. The market will benefit from a slowdown in new construction, with just 1,800 new apartments completed, according to Sperry Van Ness. Condominium conversions are also shrinking the stock of available apartments. M&M expects rents to rise 5% in the University North submarket and more than 4% in the Central Tampa and St. Petersburg submarkets. Reis predicts a 3.3% gain in effective rents to an average of $753 monthly. MP/F YieldStar Grade: B

WASHINGTON, D.C., has one of the strongest apartment markets in this survey due largely to population and job growth, which is forecast to be 1.8% (MP/F) or as high as 2.8% (M&M). The district’s population numbers 548,000 people. Construction is booming; Marcus & Millichap expects more than 8,000 new apartment units to be completed in 2006, the highest number of any city in this survey. This surge in new supply is expected to push the vacancy rate to 4.5% (Reis) or 4.8% (M&M). Effective rents should grow by 2.9%, according to Sperry Van Ness. MP/F YieldStar Grade: A