Reis released its 2015 fourth-quarter rental report on Wednesday and it had a different tone to it than the reports put out earlier in the week by MPF Research and Axiometrics that touted high occupancy rates and strong rental growth.
In a release, Ryan Severino, the senior economist and director of research for Reis, starts off by highlighting the national vacancy rate, which, he says, is increasing. “As we noted last quarter,” he states, “vacancy technically started rising during the second quarter of 2014, but had fallen back before bottoming out again during the second quarter of 2015. However, the national vacancy rate has now increased for two consecutive quarters. This marks the first time that has happened since the fourth quarter of 2009 and truly represents a turning point in the apartment market. With construction outpacing demand the national vacancy rate should slowly drift higher over the coming years.”
According to the New York City-based research firm Reis, the fourth-quarter vacancy rate was 4.4%, up 10 basis points from the third quarter. MPF had the occupancy rate at 95.8% in the fourth quarter, while Axio stated it was 95%.
The reason for the increasing vacancy, Severino states, is that construction has begun overtaking net absorption by a wider margin. “During the second quarter construction exceed demand by 3,471 units,” Severino says. “During the third quarter that difference had risen to 12,350 units and during the fourth quarter it registered 15,263 units. With construction continuing to increase and net absorption generally stabilizing, this rift should continue to widen over time putting further upward pressure on the national vacancy rate.”
There were just shy of 50,000 units delivered in the fourth quarter, Reis says, which is about the same total as five of last six quarters. In 2015, 188,000 units were delivered, the highest total since 1999, according to Reis, and completions 2016 should surpass that number.
All the while, Reis writes, 34,155 units were absorbed, which is down from the 37,243 absorbed during the third quarter and the 49,810 absorbed during the second quarter. “On a calendar-year basis, net absorption totaled 164,837 units, down from 168,684 units absorbed during 2014,” Severino states. “Although demand could certainly bounce back up in 2016, the heady absorption figures from 2012 are not likely to return during this phase of the cycle.”
Severino is adamant that the vacancy rate will rise in 2016. “Eventually, rising vacancy rates will take the wind out of landlords' sails and remove some of their ability to keep pushing rent growth at such a febrile pace,” Severino says. Also, though, it says rents on a national level won’t necessarily decline anytime soon. “It will be instructive to watch some of the most expensive markets,” Severino concludes. “If their rental growth rates falter, it will surely depress the overall U.S. data.”
