Apartment Vacancy Rate
Continues to Decline

The nation's apartment market continues to climb out of a four-year slump, posting another quarter of declining vacancies and rising rents.

The vacancy rate for the top 67 metropolitan apartment markets in the U.S. fell to an average of 6.4% in the second quarter, from 6.6% in the first quarter, according to new statistics from REIS Inc., a New York-based real-estate research firm. Average rents also increased slightly.

It's good news for apartment owners, who have weathered years of sagging rents and mounting vacancies. Since 2001, the apartment market has been hurt by weak job growth and the flood of Americans taking advantage of low interest rates to buy homes instead of renting apartments.

Researchers say there's now a healthier balance of supply and demand. The number of apartments occupied by tenants rose by 10,103 units in the second quarter, after an increase of 3,584 in the first quarter.

A major factor driving these numbers is condo conversions. Developers are rushing to turn rental apartments into condominiums, thus reducing the rental supply. Fewer new apartment buildings are being built because most new construction is giving rise to condos.

"It does seem to be going in the right direction," said Daniel Quan, director of quality assurance at REIS. "Depending on who you speak to, they might want it to move faster, but vacancy continues to come down and the effective rent is going up."

Effective rents, the rents that landlords actually collect minus repairs and concessions made to tenants, rose an average of 0.5% to $883 a month, after rising 0.6% in the first quarter. In last year's second quarter, average effective rents had risen 0.7% over the previous quarter.

Local apartment markets that experienced the greatest declines in vacancy rates from the first to the second quarter, according to REIS, included: Louisville, Ky., with a decline to 8.2% from 9.2%; Miami with a decline to 4% from 5%; Omaha, Neb., with a decline to 6.5% from 7.3%; Sacramento with a decline to 6.2% from 6.9% and Las Vegas with a decline to 4.2% from 4.9%.

Markets that saw the greatest increase in vacancy rates included New Orleans to 6.7% from 6.2%; Greensboro/Winston-Salem, N.C., to 9.0% from 8.5%; Kansas City to 8.3% from 7.9%; Memphis to 10.4% from 10.0% and Denver to 9.3% from 9.0%.

The apartment market is helped by job growth around some cities, creating more tenant demand. The condo conversions have trimmed the supply in the immediate term, but their long-term impact remains to be seen.

"The condos will help that as long they don't come flying back on the market in the next five years," said Robert LaQuaglia, a real-estate economist at Property & Portfolio Research Inc. of Boston.

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