It was the decreasing incentives offered by apartment managers in Broward County, Fla., that first caught Stephen Zaleski’s attention. The managing director in the Boston office of global real estate investment firm CBRE Investors, Zaleski noticed early this year that managers in Broward County were boosting their incomes by cutting back on the standard offer of three months free rent – first to two months and then to six weeks.

When the right property hit the market, Zaleski’s team was ready, and closed Sept. 10 on the 1,520-unit Resort at Pembroke Pines. Zaleski declines to disclose the price, but New York-based Real Capital Analytics pegs the sale at $193.5 million or $127,303 per unit. That made it the largest apartment deal in the nation that month, according to the research company, which tracks deals valued at $5 million or more.

“We saw an opportunity to obtain an irreplaceable asset,” says Zaleski, who lists the chief selling points of the deal as the price per unit, a lack of apartment construction in the area and improving fundamentals.

The Pembroke Pines buyer assumed a $120 million mortgage from the seller, a joint venture of Heitman Capital Management and the California State Teachers Retirement System.

Q3 sets records

Indeed, multifamily fundamentals are astonishing forecasters and driving acquisitions across the country. The number of rented apartments swelled by approximately 94,000 units in the third quarter, according to New York-based Reis. That’s the highest absorption figure since Reis began publishing quarterly data in 1999.

With that increase in signed leases, the vacancy rate plunged a record 70 basis points to 7.1% at the end of September, down from 7.8% at midyear. Effective rent climbed 0.6% from the previous quarter.

Reis had expected fundamentals to show strength in the third quarter, but not to a record-breaking degree, according to Victor Calanog, the company’s director of research. “Given that hiring has been lackluster, it was certainly a welcome surprise,” he says.

Looking back on three consecutive quarters of improving fundamentals, researchers say the multifamily market hit the bottom of the cycle in the fourth quarter of 2009 and is leading the commercial property sectors in recovery. Apartment prices bottomed out in the third quarter of 2009 and have been climbing since the fourth quarter, according to the Moody’s/REAL Commercial Property Price Indices.

Renters gain confidence

As Calanog observed, the apartment market’s recovery is surprising in light of weak job growth. Government employment cuts in September offset a modest gain of 64,000 jobs in the private sector for an overall loss of 95,000 jobs, and the national unemployment rates stands at an uncomfortable 9.6%. Historically, multifamily absorption follows job growth rather than the other way around.

What’s different this time? Researchers speculate that many employed Americans who have been living with roommates or family since the start of the recession have gained confidence in their own job security and are moving out on their own.

“There’s a notion that the worst is over,” says Hessam Nadji, managing director of research and advisory services at Encino, Calif.-based real estate services firm Marcus & Millichap. “We’re not going anywhere fast and growth is disappointing, but at least we have emerged from a free fall a year ago to a relatively stable labor market. That in itself is a huge difference.”

U.S. Census data suggests that 2 million people between the ages of 20 and 35 moved in with family or roommates over the past five years, and that pent-up demand will fuel further absorption, Nadji says. Unless job creation increases to about 150,000 hires per month by the middle of 2011, however, absorption will likely flatten out at that time.

Investment sales heat up

Investors are clamoring for high-quality multifamily properties, seeking a stake in the market while asset values still have room to appreciate, according to Dan Fasulo, managing director at Real Capital Analytics. Apartment sales totaled $2.6 billion in August, the most recent data available. That marked a 25% volume increase over July and five straight months of increasing apartment sales.

Fasulo attributes the mushrooming investment volume to low mortgage rates and recovering fundamentals, which have created a sense of urgency among investors. Because construction ground to a halt in 2007 and new projects take years to design, build and lease, investors are looking at a five-year window with relatively few additions to supply, he says.

Nadji at Marcus & Millichap worries that the development machine will react quickly to current investor demand, however, and flood markets with unneeded space that outpaces absorption. For now, he expects builders to add approximately 130,000 units to the national apartment supply in 2010 by the end of the year, with another 55,000 coming on line in 2011 and 70,000 in 2012.

“The bell of caution I would ring is that the industry assumes the drop-off in new construction occurring now will continue in 2011 and 2012,” Nadji says. “If by the end of 2012 we deliver 90,000 to 100,000 units a year again, the drop in vacancy we’re forecasting could slow down quite a bit.”