New data released by research firm Reis shows just how strong demand for rental property in the US is, especially apartments. According to the firm apartment vacancy rates fell by a further 20 basis points on the quarter in Q2, and 120 basis points compared to a year earlier. This left the apartment vacancy rate at 4.7%, the lowest level in a decade.
Reis Senior Economist Ryan Severino told that the vacancy rate has only fallen below 5 percent on 2 previous occasions in Reis' 31 year's of researching the market.
Looking like possibly tempering the positive report, Reis also recorded a drop in net absorption compared to Q1 with 25,540 units leasing up compared to 34,484 in Q1. But Severino explained that such fluctuations are to be expected when vacancy rates get to such low levels, because the increased security felt by landlords is reflected in their desire to increase rents more often. Severino said:
"This moderation in vacancy compression is not unexpected. It is imperative to note that the market is in a very tight position. Vacancy has not been this low since the wake of the dot-com boom more than a decade ago and there is a paucity of available units. As the market tightens and vacancy reaches very low levels, landlords shift their strategy for growing revenue from vacancy decline to accelerating rent increases and that is exactly what is transpiring."
Severino's thesis is backed up by the strongest growth in effective rents (asking rents net of concessions) since the third quarter of 2007. According to the report while asking rents were up 1% on the quarter and 2.7% on the year, effective rents rose by 1.3% and 3.5% respectively during the same periods. The closing gap between asking and effective rents is also further confirmation of Severino's belief, as it indicates that landlords are offering fewer concessions.