Thursday, April 04, 2013

Apartment and Mall Vacancy

Calculated Risk has posted updates from Reis on mall and apartment vacancies.  The occupancy rates at malls improved in the first quarter.  There was no information on rents, but new construction is at all-time lows, which points to continued improving vacancy rates.

Apartment vacancy rates dropped to 4.3%.  This is down from 2009's peak vacancy of 8.0%.  Apartment vacancies have recovered from the Great Recession faster than other commercial real estate property types.  New supply is still limited, but this is changing, and 100,000 new apartment units are anticipated later this year.  Reis discusses apartment rents:
Asking and effective rents both grew by 0.5% during the first quarter. This is the slowest rate of growth for both asking and effective rents since the fourth quarter of 2011; every single quarterly data point in 2012 showed stronger asking and effective rent growth versus what was observed in the current quarter. What does this mean?

Optimists will point out that the first quarter tends to be weak, as most households move during the second and third quarters and bolster leasing activity and rent increases. The seasonal waxing and waning in rent growth was evident in the prior year, when the strongest periods centered around the second and third quarters.

However, given how tight vacancies have become, rent growth ought to be stronger (for perspective, in prior periods when vacancies were in the low to mid‐4s, annual rent growth was well above 4%). Analysts have wondered how rents could keep climbing when jobs are being created at a sluggish rate and wage growth has been relatively stagnant: all of Reis's major markets now boast rent levels well beyond peaks achieved prior to the recession. One answer is that the moribund housing market left households with little choice but to absorb rent hikes, but with the housing market now recovering, does that mean the tide is turning against landlords?

The next few quarters will test the robustness of apartment fundamentals in the face of rising supply growth and rent levels that may have climbed to unsustainable levels.

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