The industry's momentum seems to be tapering off as fourth quarter trend reports come rolling in.
National vacancy was unchanged at 4.2 percent from quarter to quarter, which is down 10 basis points year over year, according to a report released by New York-based research firm Reis on Tuesday.
San Jose was highlighted as the tightest metro area with a vacancy rate of 2.4 percent. Constraints on new construction coupled with a booming technology industry drove strong demand in San Jose. Reis recently named San Jose as the best metro for rent increases in 2015.
The metro’s vacancy rate increased 60 basis points to 3.3 percent in the fourth quarter.
“There’s always a lot of demand in New York,” he says. “There is development taking place and it’s not exempt from the laws of economics. There’s demand but we have seen a little supply spurt so I still think there’s a lot of demand in New York even as expensive as it is.”
The metro area held steady as the most expensive American market with an average of $3,223 per month effective rent.
Meanwhile, rent growth decelerated nationally in the fourth quarter versus third quarter, but asking rent growth was still positive for the year at 3.5 percent. And all 79 primary markets included in Reis research had positive 2014 rent growth.
New construction dipped below forecasts with 39,436 units delivered nationally during the quarter. However, overall construction numbers for the year still saw an upward trend as 2014 closed with a total of 161,518 unit deliveries, the highest since 2001.
Severino says this signifies the apartment industry’s cycle is normalizing following the Great Recession’s recovery and moving back toward having “seasons” for the construction pipeline. He predicts as the seasonality returns, construction numbers will quiet during the fourth and first quarters of the calendar years.
However, the dip in closing 2014 construction numbers also revs the pipeline up for 2015, Severino says.
“We were expecting more units to come online in the fourth than did, so those will probably be deferred until first quarter of this year,” he says. “So we may have more coming this year than we would have forecast. This year is going to be a very important year for supply because we were already expecting 211,000 units and it might even be more now that some of these projections have been pushed.”