Reis reports that apartment rents grew by 0.6% nationally during the fourth quarter of 2014, a bit of a slowdown from the pace observed during 2014’s second and third quarters. Nevertheless, the trend in rents is up. Annual rent growth for apartment rents was 3.5% in 2014. This the best performance in the apartment market since 2007, and apartment easily remains the best performing property type in this respect.
Yet again, rents reached record_high nominal levels during the fourth quarter. Although an improving labor market with more jobs and faster wage growth should provide landlords with more leverage to increase rents, over time this will be stymied by the sheer number of new units coming on line, thereby increasing competition in the market. Although rent growth should remain positive for the next five years, the rate of growth is anticipated to slow, even as new units come on line with rents that are higher than the market average.
The national vacancy rate was unchanged at 4.2% during the fourth quarter of 2014. This follows the previous quarter’s slight 10-basis-point increase in vacancy, which was the first increase since the fourth quarter of 2009. Although vacancy did not continue to increase this quarter, the unchanged vacancy rate shows that the days of excess demand are likely over.
Demand had a surprising rebound during the fourth quarter to 45,027 units, the highest quarterly figure since the fourth quarter of 2013. This is an important point, even as construction increases in 2015 and beyond, demand will remain robust due to the large number of young renters in the United States. However, as we mentioned last quarter, this is the beginning of an up cycle in vacancy, and demand will struggle to keep pace with the significant amounts of new construction that should come on line over the next few years.