National apartment unit vacancy rose by 10 basis points (bps) in the third quarter, up to 4.5%, while asking and effective rents rose by 1.0% and 0.9%, respectively, over the same period.
The vacancy shift falls in line with Reis’s expectations for the year, according to Victor Calanog, chief economist and senior vice president at the firm, in his Apartment Trends analysis for Q3 2017. Calanog says the industry should “expect a moderation in rent growth as the market absorbs new supply.”
Reis expects a set of “banner years” for supply growth in 2017 and 2018. The market is on track to deliver 250,000 new units across Reis’s top 82 markets this year, a level of growth not seen on a national scale since the late 1980s. Vacancies are expected to continue to rise as new supply comes on line. However, given that a lot of lenders and financiers have pulled back on multifamily, a supply-growth drop-off could come into play by 2019.
“The train has left the station for the projects which have already broken ground, and the next 18 months will really be a time of reckoning for markets like New York, where it's expected that a record number of new properties—over 15,000 units, not counting condos and townhomes—will come on line,” says Calanog. “Vacancies in New York have already spiked to 4.7% in the third quarter—[the term] 'spike' being relative—and in a market used to 2% to 3% vacancies, ending the year at close to 6% generates a lot of hand-wringing for New York City market participants.”
At the local level, Tacoma, Wash., is the top apartment market by effective revenue growth between Q3 2016 and Q3 2017, at 6.4%. Colorado Springs, Colo., comes in second, at 6.0%, followed by Fort Worth, Texas, at 5.4%. Little Rock, Ark., had the greatest negative effective revenue growth, at -1.5%, followed by both Westchester, N.Y., and New York City, each at -1.0%.
