The nation’s apartment vacancy rate has reached a 22-year high, according to New York-based research firm Reis. The second quarter vacancy rate of 7.6% represents a 150 basis point increase from June 2008, and a 30 basis point jump from the first quarter of 2009.
The rate is even higher than in the first quarter of 2004 at the height of the previous national downturn, when it reached 7.2%, said Victor Calanog, director of research, in an early analysis of the second quarter results. The 7.6% vacancy rate level has not been recorded since 1987, according to Reis.
The multifamily market’s performance is tied to ongoing job losses, Calanog said. The nation’s unemployment rate hit 9.5% in June, according to the Department of Commerce.
Absorption levels drop
Net absorption in the second quarter was the worst in at least a decade, since Reis began publishing quarterly performance data in 1999. Fewer than 900 apartment units were absorbed, less than a tenth of the absorption recorded in the second quarter last year.
Effective rents declined 0.9% amid an increasing number of landlord concessions, as the landlords tried to stem the occupancy losses, Calanog said. Asking rents fell by 0.6%, and that decline matched a record set in the last quarter when asking rents also fell by 0.6%.
In this climate of deteriorating rents and rising vacancy levels, it’s no longer enough for landlords to offer concessions, Calanog said. Now the landlords have to market apartments with significant discounts in asking rents even before the subject of concessions is broached.
More supply is en route
Reis projects that more than 110,000 units will come on line this year. In the first half, more than 47,000 units have already entered the market. Adding 110,000 units for the year is comparable to the level of supply added over the previous three years, according to Reis.
Across the country, vacancy rates declined in 34 of 79 markets examined by Reis. That figure is actually an improvement over the first quarter, when vacancies increased in 77 of the 79 markets. Effective rents dropped in 68 markets in the second quarter.
The largest effective rent decline occurred in San Jose, which registered a 290 basis point drop in the second quarter. Las Vegas and San Francisco also had effective rent declines of more than 2%.