U.S. Apartment Vacancy Rate Hits 30-Year High

Reuters reports the U.S. apartment vacancy rate rose to an almost 30-year high, and rents dropped in the biggest one-year slump in 2009

By By Matt Phair, HousingZone Contributing Editor

January 7, 2010

Reuters today reported that the U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.

The report reflects the job market, which has not followed positive economic indicators such as the stock market rebound. Large apartment landlords such as Equity Residential, AvalonBay Communities Inc., Essex Property Trust Inc., UDR Inc. and Post Properties Inc. have resorted to reducing rents and offering perks to retain and attract tenants.

Several indicators, however, offer the promise of an improved 2010 market:

Of the 79 U.S. markets that Reis follows, vacancies in the small market of Chattanooga, Tennessee fell 2.2 percentage to 6.4 percent. Meanwhile, Tucson, Arizona experienced the biggest vacancy rise, up 3.1 percentage points in 2009 to 10.5 percent.
Nationally, 28,000 newly constructed apartments came onto the market in the fourth quarter, mostly by developers who had obtained financing before the credit crisis worsened.
The supply of newly built apartments is winding down as the last projects funded before credit dried up start to open for business.
In New York City, the largest U.S. apartment market, vacancies fell 0.10 percentage points to 2.9 percent. Higher priced rental properties in Manhattan drove the vacancy decline, while apartment buildings in more middle-class boroughs haven't been able to dodge the bullet.

Asking rents, however, are still in dismal shape. In the fourth quarter, U.S. asking rents fell by an average of 0.7 percent to $1,026 per square foot, the largest single-quarter decline since 1999. For 2009 asking rents fell 2.3 percent, also the largest decline in 30 years.