Apartments Remain Relatively Undamaged by Economic Crises through Third Quarter

By Keat Foong, Executive EditorNew York—Apartment fundamentals on a nationwide basis remained relatively healthy through the third quarter despite the economic and financial crises. “At least through September, the apartment market has held up surprisingly well given the tough environment,” said Mark Obrinsky, chief economist at the National Multi Housing Council (NMHC).  NMHC’s “Market Trends” reports that the U.S. Census Bureau vacancy rate in the third quarter for all rental apartments (in buildings with five or more units) is 10.7 percent, only 0.3 percent higher than compared to a year ago—and still below the level in 2003-04. Meanwhile, rents continue to increase, though at a slower pace and less than the rate of inflation. “Apartment rents measured by both public and private data sources increased from one year ago,” stated the report. The report cited M/PF YieldStar research showing that same-store rents for professionally managed apartments increased by 1.7 percent, the smallest increase in four years and 3.6 percentage points below the overall inflation rate. Obrinky explained that the troubles in the single family have been of a slight net benefit to the apartment market so far. While turmoil in the single family home market creates the shadow rental inventory, its greater benefit has been fewer rental customers taking up homeownership. Obrinky warned, however, that apartment fundamentals have weakened considerably since October. “In the past month or so, however, we have seen signs of weakness.”“We’re guarded about the outlook for 2009. We think it’s going to be tough. It looks like we’re in a recession and it could be a tough one,” says Obrinksy.  The apartment market is “still healthy,” agreed Richard Moody, chief economist and director of research at Mission Residential LLC. However, Moody said that household formation has already started to slow down—indicating recessionary conditions. Moody said markets in the Midwest, Florida, Phoenix and Las Vegas are already seeing occupancy levels in the high-80 to low-90 percent range. Moody said, however, that the greater restraint on the apartment supply side may mean that apartment investments may not fare as badly in 2009 as during the late-1980 to early-‘90s recession when markets were considerably overbuilt.