The worst could soon be over for the apartment industry—at least when it comes to rising vacancy rates. Vacancies are expected to hit an average of 6.8 percent this year—down from 7.4 percent in 2009—in 60 markets surveyed by New York-based research group CBRE Econometric Advisors (CBRE-EA). “We do expect vacancies to edge down in 2010 from the peak in 2009,” says Gleb Nechayev, vice president and senior economist for CBRE-EA (formerly CBRE Torto Wheaton). “That expectation is based on an expectation for job growth. It’s very important that we get tangible job growth in 2010.”
Still, Nechayev cautions that 2010 will be 40 basis points worse than 2003, the highest year for vacancies before this most recent downturn, according to CBRE-EA.
Not surprisingly, CBRE-EA expects Washington, D.C., to report the tightest rental vacancies at 4.2 percent. In New York, Los Angeles, and Chicago, CBRE-EA predicts vacancies to decline to about 6 percent, with Chicago seeing the steepest fall from 7.4 percent. Of the biggest markets, Houston is unquestionably the worst off, with vacancies projected to balloon to 10.5 percent from 9.3 percent.
Of course, to keep occupancies tight, rental operators are making sacrifices—more so than in past recessions. Citing data from Carrollton, Texas-based M/PF Research, Nechayev says by the fourth quarter of 2009, more than half (51 percent) of rental owners at 20,000 properties surveyed were giving rent discounts or concessions. That’s up from 37 percent in 2008 and 46 percent in 2003.
Nechayev predicts the rental industry will see continued upward momentum into 2011 and 2012. And multifamily execs are banking on that. “My guess is that in two years, the world will be good again,” says Cris Sullivan, senior vice president for property operations at Atlanta-based Gables Residential, who has dealt with a number of battered Southeastern markets over the past couple of years.