Apartment Rental Demand in the U.S. Cools Down a Bit

by 04 Oct 2012

(TheNicheReport) -- Demand for rental properties has been the main driver of the American housing recovery since 2010, and real estate investors have been paying attention to this trend. Multifamily properties like apartment buildings and condominiums, typically the most profitable rental structures, have enjoyed steadily rising interest from tenants over the last few months. The most recent apartment vacancy figures, however, indicate that the interest could be waning a bit.

As reported by financial news media outlet CNBC, the number of apartment vacancies experienced a ten percent drop in the third quarter of 2012. Such report would normally be good news, but not for those who are hoping for a constant improvement of the housing market. From 2010 to the second quarter of 2012, the average drop in vacancies was 35 percent, often not allowing for supply to catch up to demand.

Too Many Apartment Buildings

CNBC further cited estimates from real estate analytics firm Reis Inc. and the U.S. Department of Commerce. The government reported that the year-over-year increase of new construction starts for apartment buildings was 37 percent. 

Reis, Inc. tracks 79 rental markets, many of them in major metropolitan areas where demand is high. In 2011, Reis reported 41,000 new rental units built, and now it is estimating that 2013 will bring 160,000 to 200,000 new units in those regional markets. In 2014, that number could climb to 320,000 according to planned construction projects. 

Some analysts believe that the rental demand could shift to single-family homes, which have been traditionally preferred over apartments, and the reduced drop in vacancies during the third quarter could bolster that belief. Should that trend take hold and continue for a few months, investors in apartment buildings could be looking at too many unoccupied units. 

Continuing Demand

Many of the families choosing apartments over single-family residences are foreclosure survivors or young people who are disillusioned with the part of the American Dream that calls for a house with the white picket fence. Still, working-class households with large extended families are more likely to look at single-family residences as their housing solutions.

In some regional markets investors have been accumulating distressed single-family residences because they believe they can provide relief to the rental demand that is keeping some families waiting up to four months for a vacancy. Renters in apartment buildings are also not as mobile as before, which indicates some stability in this sector of the housing market, but things could change by 2014.


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