Apartment Market Looks Forward to Continued Strength in ’15
- Jan 15, 2015
San Francisco—The U.S. apartment market still has the wind at its back, according to the just-released 2015 National Apartment Research Report by investment specialist Marcus & Millichap, with apartments exceeding expectations in 2014. Still, the outlook for this year is one of some downward pressure on rent increases, as competition from new supply will likely pare overall effective rent growth to 3-3.5 percent in 2015.
Strong job gains, solid demographics and a sustained preference for renting stimulated renter household formations last year, which generally involved renting a apartments; home ownership drifted to a 19-year low of 64.4 percent, the report noted. Thus in 2014, the national vacancy rate dipped as low as 4.2 percent, ending the year at 4.7 percent as more units came on line.
The number of new units delivered in 2014 totaled 238,000, marking a 14-year high, and completions were met by a surge in pent-up demand of 270,000 apartments. This year, Marcus & Millichap predicts, supply totaling 210,000 units will likely surpass demand for 186,000 rentals, increasing vacancy to 4.8 percent. New supply last year tempered CBD rent growth and mid- to lower-tier assets led effective rent growth of 3.8 percent.
Metros with the lowest vacancy rates and strongest job, rent and demographic trends ranked highest, according to Marcus & Millichap. Oakland, Calif., (#4) joined low-vacancy leaders San Francisco (#1), New York City (#2), and San Jose (#3). Rent gains advanced Los Angeles (#8), while excellent metrics lifted Miami (#9), but Seattle-Tacoma (#11) lost pace on rising vacancy. Houston (#16) tumbled on heightened energy-sector risk.
Also, according to the report, the forces shaping investor demand in this cycle don’t appear to be tailing off, creating and sustaining demand for apartment properties during a period of historically low vacancy rates. Apartment values now measure 13 percent above the 2007 peak.