The apartment market staged another strong performance during the third quarter, according to Marcus & Millichap's quarterly “Performance Monitor.” The weak housing market drove resident demand for apartments, off setting the largest quarterly delivery of new units in three years and resulting in declining vacancy for the third consecutive quarter. Tight occupancy levels and increasing absorption allowed owners to trim concessions for the 11th straight quarter, as effective rent growth outpaced asking rent growth by 20 basis points.

Looking ahead, competition from the shadow-rental market and a growing number of condo reversions will likely cause owners of newer, high-end apartments to raise concessions in some markets. In the lower tiers, operators will face less competition from shadow rentals and can expect another year of relatively stable revenue growth.

At the national level, growth in the renter pool due to ARM resets and residential foreclosures is forecast to off set the impact of added competition from the shadow-rental market. However, markets that were particularly popular among condo and single-family home investors, or those that have an abundance of new housing stock available, will not perform as well as added competition weighs on occupancy and rent growth.

Compared to the same quarter last year, revenue growth was up 4.4 percent, driven by healthy rent increases. Developers brought 20,500 units to the market in the third quarter, the second largest amount in the last three years.