Apartment Vacancies Slip to 6.2% in 2Q, Trend Expected to Continue in 3Q

By Anuradha Kher, Online News EditorBoston–National apartment fundamentals failed to display any demonstrable signs of improvement in the second quarter of 2008 as vacancies slipped by another 10 basis points to 6.2 percent, according to Property & Portfolio Research’s latest Apartment Trends report.“A soft job market, an increasing pace of apartment completions and persistent shadow supply were the three main reasons for this trend,” Michael Cohen, research strategist at PPR tells MHN. Cohen follows and analyzes the state of the U.S. multifamily market including both rental and for-sale product. “In the absence of job growth, people find it difficult to pay rent and the household formation slows down. Children move in with their parents, and people start doubling and tripling up. This will continue to lower the demand for apartments,” he adds.However, even at the current level, vacancies are a far cry from a cyclical high of 7.4  percent, reached in late 2003. All in all, with almost 141,000 units expected to be delivered across the PPR54 (54 of the country’s largest markets, according to PPR) this year, fundamentals will remain under pressure as a challenging economic backdrop hinders demand. Vacancies are expected to approach the high 6 percent range by end of this year before finding some stability in 2009, PPR predicts.PPR’s third-quarter report will be released sometime next week but Cohen gives MHN a peak into the findings of the report. He says, “Multifamily fundamentals continue to soften through the third quarter and we expect the same in the fourth quarter as well.”Even with 141,000 units coming in by the end of this year, the rate of new supply at present is more modest compared with the economic downturn. In 2001, as the U.S. economy was entering recession, net completions across the PPR54 reached almost 200,000 units.  Even so, few metros will escape the trend of higher vacancy rates over the next six months. Only five will actually enjoy stronger fundamentals by year-end 2008, with Oklahoma City in first place. On the other hand, Orlando, at 310 basis points, continues to top the list for the greatest increase in vacancies in the second half of 2008. Rounding out the top five are Jacksonville (up 210 basis points), Charlotte (up 180 basis points), Fort Lauderdale (up 180 basis points), and Austin (up 170 basis points).Dislocation in the for-sale housing market could, over the long term, benefit property managers and owners. There is a dramatic deterioration in the for-sale housing market, which has produced a considerable drop in the U.S. homeownership rate. For example, year-over-year through June, sales of existing single-family homes and condos are off by 15.5 percent.