Apartments Still a Landlords’ Market, Says NAR

Washington, DC—The forecast for rental apartments is still positive, according to the Q1 2014 Commercial Real Estate Outlook, which was released this week by the National Association of Realtors. In fact, according to the outlook, the apartment sector will remain the strongest kind of commercial real estate into 2015, as it has been for a number of years now.

NAR predicts that apartment vacancies nationwide will edge up from 4 percent, as of the second quarter of 2014, to 4.1 percent in Q2 2015. Though that represents a small increase, it doesn’t mean a fundamental change in the landlord-tenant dynamic. Vacancy rates below 5 percent are generally considered a landlord’s market, with demand justifying higher rent.

And indeed landlords will be able to collect higher rents for the next year at least, even though added supply will help meet growing demand. Average apartment rents are projected to rise 4 percent both this year and in 2015. Multifamily net absorption, which is a function of demand, is expected to total 221,400 units in 2014 and 173,100 next year.

A bulge of apartment building completions will occur in 2014, the consequence of an uptick in development beginning about two years ago. This year, according to the Realtors, more than 221,300 new units will be completed. In 2015, that number will drop somewhat, to about 173,000.

Areas with the lowest multifamily vacancy rates—the tightest markets, as far as landlords are concerned—currently include New Haven, Conn., at 2.3 percent, and Ventura County, Calif., at 2.4 percent. New York City; San Diego; Hartford, Conn.; Oakland-East Bay, Calif.; and San Diego, each have 2.5 percent vacancy rates. None of the markets surveyed by NAR have a multifamily vacancy rate higher than 8 percent. Memphis happens to have the highest at the moment, coming in at 7.9 percent.