As vacancy stayed the same, at 4.2% over the past six quarters, Reis reported that effective and asking rents each grew 1%, rebounding from 0.6% in the first quarter. For asking rents, that was a 3.4% 12-month change; for effective rents, 3.6%.
“Although the apartment market typically exhibits some seasonality, which appears to be the case here, the longer that vacancy remains at such low levels, the greater the probability rent growth will remain this strong,” Reis senior economist and director of research Ryan Severino said in a statement.
In all, 43,380 units were absorbed in the quarter, while 44,041 units were started. Overall, 2015’s 77,350 construction starts is the highest number at this point of the year since 1999.
But as construction increases, Severino doesn’t think demand will keep pace. And he expects construction volume to test historically high levels in 2015. The only thing holding back supply and keeping vacancy at 4.2% is that completions have remained muted.
“Although construction continues to increase, we have yet to see the big surge in completions we've been anticipating,” Severino said. “That's not to downplay the relatively large amount of supply that continues to come on line so much as it is to highlight the daunting situation yet to come. Even without construction volume leaping, vacancy compression has stalled.”
The past few quarters have seen an increase in soft openings and pushback in completion dates. “Both simply delay the inevitable—vacancy rates will rise,” Severino said. “It's only a matter of time, at this juncture. … Clearly, the run of vacancy compression during this cycle is over. From this point forward, with supply projected to exceed demand, we anticipate that vacancy will rise, slowly at first and then more gradually as we move forward.”
Overall, Reis expects 230,000 new units to come on line this year, which means roughly 150,000 should come on line during the balance of the year. The firm says the 150,000 number is roughly 25% more than a normal year’s production.
“That will create some disruptions in metros that are going to have to digest a lot of new supply,” Severino said. “In the short term, national vacancy will remain low enough that even as it rises, landlords will still be able to extract super-normal rent growth from their tenants. Therefore, we expect asking and effective rents to grow by roughly 3.5% this year. However, the more vacancy rises over time, the harder it will be for landlords to keep raising rents at such a pace. Contrary to popular opinion, the good times will not last forever.”