The apartment vacancy rate rose by 0.1% in the third quarter of 2018, moving from 4.7% in the second quarter to 4.8%, according to the 3Q2018 Reis Preliminary Apartment Trends Release. The vacancy rate has risen by 40 basis points since Q3 2017, and by 70 basis points since its last low of 4.1% in Q3 2016.
Both the national average asking rent and the national average effective rent rose by 1.2% in the third quarter. The national average asking rent is now $1,424 per (market rate) unit, while the effective rent is $1,356 per unit. Average asking rents have risen 4.5% from the third quarter of 2017, and effective rents rose 4.2%.
Net absorption was 35,683 units in the third quarter, while new construction was 50,475 units, both lower than last quarter (57,988 units absorbed, 67,417 built) and lower than the 2017 quarterly average (46,685 absorbed, 61,535 built).
Barbara Byrne Denham, Reis senior economist, notes that while the apartment market had started to slow at the end of 2017 and start of 2018, the passage of the tax reform bill reduced tax incentives towards home ownership. This has provided some boost to the apartment market, especially in high tax areas.
“We expect construction to remain robust for the rest of 2018 and in the first half of 2019 before completions drop off in subsequent periods,” says Denham. “Occupancy is expected to remain positive, although vacancy rates are expected to increase, as new supply will outpace demand growth. Still, as long as job growth holds steady, we expect rent growth to remain positive over the next few quarters.”
At the metro level, the vacancy rate rose in 45 of the 79 metro markets tracked by Reis this quarter. Chattanooga, Tenn., had the highest vacancy rate increase at 0.9%, up to 6.2% for the quarter, followed by Fort Lauderdale, Fla., and Louisville, Ky., Pittsburgh, Penn., had the sharpest vacancy rate decline at -0.6%, down to 5.3% for the quarter, followed by Tulsa, Okla., and Birmingham, Ala.
Forty-eight metros posted effective rent increases of 1.0% or more, and five posted increases of 2.0% or more. Memphis, Tenn., led the nation at 2.3%, up to $798, followed by San Diego, Los Angeles, and Seattle. Only Orange County, Calif., Lexington, Ky., and Fairfield County, Conn., posted effective rent declines.
New York City’s effective rent rose 1.0% last quarter, while its vacancy rate fell 0.1% to 5.2%. New York has seen rent declines in six of the last ten quarters, but its effective rent has risen 2.3% in the past year. This places the city in the bottom twenty metros for rent growth.
Like many of these metro markets, healthy job growth continues to fuel demand for New York apartments. The city has added 73,100 jobs in the last year at a 1.7% growth rate. The U.S. has added 207,000 new jobs on average each month over the past eight months, up from an 189,000 average increase in the first months of 2017. Orlando, San Bernadino-Riverside, Calif., Colorado Springs, Colo., Austin, Texas, and Dallas have posted the highest year-over-year job growth, and no metros have shown any job loss.
By Mary Salmonsen