Apartment Vacancy at 22-Year High in U.S., Says Reis

By Hui-yong Yu
Bloomberg
Jul. 10, 2009

July 8 (Bloomberg) -- U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market.

Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York-based real estate research firm Reis Inc. said today. The last time landlords had so much empty space was in 1987, when vacancies reached 7.6 percent as the Standard & Poor's 500 Index plummeted 23 percent in the last three months of that year.

"Vacancies continued to rise despite what has traditionally been a strong leasing period for apartment properties," said Victor Calanog, director of research at Reis.

Job losses and falling wages are shrinking the pool of potential renters, defying forecasts that prospective homebuyers would rent rather that purchase as house prices decline. The U.S. unemployment rate rose to a 26-year high in June and U.S. payrolls dropped more than forecast in June, the government said last week.

Equity Residential, founded by billionaire Sam Zell and now the biggest U.S. apartment landlord by market capitalization, said in April that job losses made the company "cautious" and it was offering rent reductions to lure tenants.

Asking rents for apartments fell 0.6 percent in the second quarter from the first, Reis said. That matched the rate of change in the first quarter, the biggest drop since Reis began reporting such data in 1999.

Asking rents dropped 0.7 percent from a year earlier to an average $1,040 a month.

Rents Drop

Rents paid by tenants, also known as effective rents, fell 0.9 percent from the previous quarter to $975, said Reis. Effective rents were 1.9 percent lower than a year earlier.

Effective rents fell the most in San Jose, San Francisco, Las Vegas, Southern California's Orange County and Seattle. Those cities had been boosted by technology companies or the housing boom.

Rents paid by tenants climbed the most in Birmingham, Alabama; Chattanooga, Tennessee; Louisville, Kentucky; Norfolk/Hampton Roads, Virginia; and Syracuse, New York, according to Reis.

The vacancy rate increased the most in Tucson, Arizona, by 1.5 percent to 9.9 percent, followed by Charlotte, North Carolina; Little Rock, Arkansas; and Richmond, Virginia, Reis said.

New York's Rate

Vacancies shrank the most in Columbia, South Carolina, by 1.2 percent to 13 percent, followed by New Haven, Connecticut; Colorado Springs and Birmingham, Alabama, the report said.

New York had the lowest vacancy rate in the second quarter, at 2.9 percent, followed by New Haven, home to Yale University; Central New Jersey; New York's Long Island; and Syracuse, New York, according to Reis.

Jacksonville, Florida, had the most apartment vacancies, at 13.1 percent, Reis said. Next were Charleston and Columbia in South Carolina and Greensboro/Winston-Salem in North Carolina, said Reis.

The vacancy rate rose even as the net change in occupied space climbed by 2,530 units, Reis said.

A total of 22,696 units were completed last quarter, raising the total for the first half to 47,000, Calanog said. Reis expects more than 100,000 units to become available this year.

"New buildings coming online over 2009 and 2010 will face higher initial vacancy levels, and will work to increase the pressure on leasing managers," Calanog said.

To contact the reporter on this story: Hui-yong Yu in Seattle at [email protected]