A SLEW OF RECENT market reports are shining a light on what many operators already see at the site level: improved fundamentals in both occupancy and effective rents. One reason why: Net apartment absorption—the amount of units leased after deducting the amount of supply—jumped by more than 46,000 units in the second quarter, the highest increase in a decade. The national vacancy rate has decreased 200 basis points to 7.8 percent, and improvements are widespread, with occupancy increases in 67 of 92 markets and net absorption improvements in 71 of 82 metro areas tracked by New York-based research firm Reis.
Industry sentiment gauged by a National Multi Housing Council (NMHC) survey likewise shows multifamily market buoyancy despite the continued specter of a sluggish economic recovery. “The strong responses in each of our last two surveys indicate widespread improvement over the past six months,” noted NMHC chief economist Mark Obrinsky in the Quarterly Survey of Market Conditions. “Demand for apartment residences has substantially increased thanks to modest improvements in the jobs market and the continuing decline in homeownership rates.”
According to Carrollton, Texas-based M/PF Research president Greg Willett, recovery in the apartment sector is coming from a variety of different sources, but nonetheless is equating to comparatively more aggressive rent pricing and the consideration of development options among operators. “Our numbers are showing really impressive demand so far this year, and it's not just in a handful of areas; it's pretty much everywhere,” Willett says. “But when you look at the job numbers out there, while certainly for the first half of the year they were meaningfully improved, they still don't support all of the demand that you are seeing, so it has to be coming from other sources.”
Willett says an ongoing anecdotal survey of operators by M/PF Research reveals slight demand increases from incremental job growth; the decline of the doublingdown phenomenon as renters elect to ditch roommates in favor of one-bedroom units; portions of the Gen Y demographic moving out of their parents' residences; single-family shadow renters returning to the apartment market; and even those individuals who have sold their homes opting to rent in what is otherwise an uncertain economy.