Apartment Demand Slows in Third Quarter | Mount Kisco NY Real Estate

Having recently participated on a panel at the National Apartment Summit, I had a chance to discuss drivers of demand and overall trends for the multifamily market. Investors are still bullish on the performance of the apartment sector, though they are concerned with the pace of job creation and the impact of sluggish economic growth on the under-35 years of age demographic. In addition to low wages, this group of traditional renters has also been contending with increasing education debt levels.

With payroll employment still stuck in second gear, demand for apartments has been slowing into the third and fourth quarters. Net absorption of apartment space—a measure of demand—is projected to be 54.830 units in the third quarter, with a year-end total of 219,318 units. This figure represents a noticeable improvement over last year’s demand numbers, especially in light of the supply trends.

Completions of new multifamily buildings have been rising, boosted by financing availability from Government Sponsored Enterprises. Supply of apartments is projected to total about 31,543 units in the third quarter and 80,000 units for 2012.

Given the strong demand of the past year, there’s still a gap of about 140,000 units between demand and supply of space in 2012. Vacancy rates have been declining, reaching 4.3 percent in the third quarter. However, with the slight decline in demand, national vacancies are expected to close the year at a level 4.3 percent. The local markets with the lowest availability rates are Portland, Minneapolis and New York with vacancy rates of 2.0 percent, 2.2 percent and 2.2 percent, respectively. At the other end of the spectrum, Memphis, Jacksonville and Houston continue to work through rates at or above 7.0 percent. Rent growth for office space has been positive so far and is expected to stay in the 4.0 percent range for 2012, although the underlying fundamentals are pointing to a potential slowdown.