In Slowing Economy, Apartment Vacancy Rates Remain Stable

By Anuradha Kher, Online News EditorNew York–Amidst headlines of doom and gloom in the economy, the multifamily industry is holding relatively strong. “Vacancy rates in the apartment sector have been stable in the last three quarters and apartment rent growth in the second quarter of 2008 has seen the strongest gain as compared to all other types of commercial real estate,” Dr. Sam Chandan, chief economist and senior vice resident for research at Reis Inc. said today in a virtual conference hosted by Reis. “Overwhelmingly and in all parts of the country, buyers are preferring to rent now as a result of which effective rent growth is expected to keep going up. The overall slowdown and situation in the slowing labor market will negatively affect apartments and in some markets, the condo shadow market will compete with the apartment sector with more units coming online,” he said. As a result, asset prices for apartment units have been falling from their peak period to the first quarter of 2008, by 13.3 percent.Chandan also talked about the ongoing housing crisis, resulting financial troubles, low consumer confidence levels and slowing labor market and then went on to outline how this will affect commercial real estate. He said there will be greater regulatory oversight, more significant intervention in the housing market as is already happening and tighter credit conditions in the housing market. With regard to Fannie Mae and Freddie Mac, Chandan said that Government Sponsored Enterprises (GSE) financing for multifamily mortgages as a share of overall or even absolute has become a dominant source for multifamily as other sources of finance have slowed down. “The multifamily sector is critical not only to bring affordable housing but also because it is a strong source of growth in commercial real estate. As a result, the industry needs to closely watch the availability of agency financing,” he said.Chandan warned that just as a credit market of abundance has the ability to inflate asset prices, a depressed credit market has the ability to depress asset prices below the cash flow levels and that is something that needs to be monitored.Comparing this slowdown to previous ones, Chandan noted that while consumer confidence levels are lower than what they were in 2001, and almost as bad as they were in 1981, the forecast for the commercial real estate industry suggests that the industry will be in a much better position as the country starts emerging from the downturn than it has been in the previous recessions.