The U.S. apartment market in the third quarter turned in one of its weakest performances ever as the national vacancy rate hit a 23-year high despite being propped up by landlords willing to take lower rent to keep tenants, according to real estate research firm Reis Inc.
The U.S. apartment vacancy rate rose to 7.8 percent in the third quarter, its highest since 1986, according to the report released on Tuesday. Vacancies have been rising since the third quarter of 2007, according to Reis.
The U.S. apartment market has been reeling for more than a year as its main demand driver, job growth, disappeared in the U.S. recession.
Reis still expects the U.S. apartment vacancy rate to pass the 8 percent mark by perhaps next quarter but certainly by next year, Calanog said. That would make it the highest vacancy rate since Reis began tracking the market in 1980.
In the third quarter, the U.S. apartment asking rental rate fell 0.5 percent to $1,035 per month, the fourth consecutive declining quarter. Factoring in months of free rent and other perks landlords have been using to lure or keep tenants, effective rent fell 0.3 percent to $972, also the fourth consecutive quarter of declining rent.
“We have not seen that before,” Calanog said.
“Vacancy could be worse if landlords didn’t realize fairly early on that this end game was not going to end well and lowered rents really quickly,” he said.
Reis does not foresee a turnaround in the apartment market until at least the second quarter of 2010 at the earliest.
“That turnaround may be very tepid,” he said. “It might just be that vacancies are flat.”
In New York, the largest U.S. apartment market, the vacancy rate fell 0.10 percentage points to 2.9 percent. Effective rent fell 0.9 percent to $2,657 per month.
“With job markets still being lost at the national level and with New York being relatively more dependent on the still-embattled financial services sector, it may take a few more quarters before we see rents bottoming out in the Big Apple,” Calanog cautioned.