A Coming Deluge of Apartment Construction via NREI

Apartment fundamentals are performing at robust levels, with vacancies cratering to levels unseen in more than a decade. With few other real estate sectors offering such promising returns, developers are planning to open hundreds of thousands of new rental units in the next few years. Will the growth in new supply arrest improvements in occupancy and rents?

THE RECENT PAST
First quarter figures for 2012 are no less impressive than the arc of recovery that apartment properties have followed over the last two years. National vacancies dropped to 4.9 percent, the lowest level since late 2001. This is only the third time in more than 30 years of Reis history that national apartment vacancies have dipped below 5 percent.

More than 36,000 units leased up from January to March. Effective rent growth tends to spike as landlords perceive that tight market conditions allow for greater pricing power, and it is typically at levels below 5 percent that a pullback in concessions accelerates. Sure enough, effective rents grew by 0.9 percent in the first quarter, the fastest pace of increase since end-2007.

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