The multifamily real estate sector posted its greatest quarterly occupancy gain in the third quarter and is poised to continue to benefit from single-family housing market decompression throughout 2011, commercial real estate economists said this week in separate forecasts delivered by New York City-based REIS and Washington, D.C.-based Jones Lang LaSalle. While anemic GDP growth continues to hamper improvements to the unemployment picture, jobs are being added, and optimism of broader economic recovery is giving renters—particularly in the Gen Y millennial demographic—the confidence to double-down out of roommate and live-at-home situations.
“National vacancy levels fell by 70 basis points from 7.8 percent to 7.1 percent,” said REIS director of research Dr. Victor Calanog. “This is one of the sharpest drops in vacancy on record, and pent-up demand from renters [opting out of] living with their families or other roommates seems to be driving these results.” According to REIS, the third quarter also saw record net absorption of 94,000 units, with 90 percent of absorption coming from existing buildings leasing empty units.
“With job prospects improving, double-up and move-back-with-the-parents millennials are feeling more confident in entering the rental market,” noted Jones Lang LaSalle multifamily director of capital markets research Josh Gelormini. “Multifamily is also benefiting from difficulties still facing the housing market, and there is limited fear among renters of being priced out of the housing market moving forward. We expect more of the same positive trends impacting the apartment sector in 2011.”
According to Jones Lang LaSalle forecasts, GDP growth will continue at its slow pace next year, with acceleration up to 2.5 percent growth towards the end of the year. Unemployment, consequently, is expecting to remain static for most of 2011, with possible improvements towards the second half of the year pushing the jobless rate down into the 8.5 percent to 9 percent range.
“If growth is below 2.3 percent, it means the GDP is not growing fast enough to push the unemployment rate down,” Calanog agreed. “That doesn’t mean jobs are not being added; it just means the pace of job growth and the rate of new entrants into the job market will be a wash, keeping the unemployment rate stuck in the mid- to high-9 percents. The U.S. economy needs to grow at a rate above 2.4 percent before demand for labor increases at a rate that begins to push the unemployment rate down.”
According to Calanog, consensus forecasts peg early 2015 as the time when the employment sector will ultimately recover the 8.4 million jobs shed during the recession. Despite the slow job growth, multifamily is still expected to benefit from strong fundamentals and continue to dominate as a real estate investor sector of choice. “If the rate of job creation remains disappointing in 2011, it is likely that record breaking trends for apartment rentals may moderate,” Calanog said. “But with a shortage in the supply of new projects coming online in 2011, rental apartments are expected to post healthy gains in occupancy and rent growth for at least the next five quarters.”
The REIS forecast noted growth in effective rent increases versus asking rents, implying that rent specials have largely burned off. “Concession packages are no longer increasing and my in fact be tightening,” Calanog noted. “Concessions on average have gone from three months in early- to mid-2009 to just half- to one month off today.”
