The strong recovery that characterized the apartment market over the past few years is expected to give way to more stable growth in 2007, according to Marcus & Millichap's quarterly “Performance Monitor,” which analyzes multifamily completions, revenue, permits, and starts and indexes them back to the year 2000.
At the end of the fourth quarter 2006, revenue growth remained robust, although owners will feel some competition as reconversions draw from renter demand. As such, revenue growth will be driven by effective rent growth rather than occupancy improvements.
The number of units completed increased in the fourth quarter compared to the previous quarter, adding more than 20,000 units to inventory. Completions, as a percent of inventory, are running at 0.3 percent, which is 54 percent of 2000 levels.
Compared to the same period one year ago, vacancy remains nearly flat. As conversion activity reached the lowest levels in 15 quarters, supply surpassed demand, causing a slight fourth quarter bump in vacancy. Condo conversion activity continues to wane, with an estimated 3,700 units sold for conversion during the fourth quarter of 2006, down almost 90 percent from the same per iod in 2005.