Reis: Apartment demand chills slightly in the third quarter
Interest in the multifamily segment may be cooling just as fast as it heated up in the wake of the single-family housing crisis, according to new data from commercial real estate data firm Reis Inc.
The evidence cited by the research firm is the lower apartment absorption rate recorded in the third quarter, as well as the miniscule vacancy rate drop for the same period.
Renters absorbed only 22,615 apartments in 3Q, down from 31,014 in the second quarter and 36,423 in 1Q.
The vacancy rate, which has been falling as more former homeowners turn to apartments, failed to fall significantly in the third quarter, suggesting a cooling on the demand side.
"Has sluggish economic growth finally bogged down the rapid improvement of fundamentals for apartment properties across the nation?" Reis asked rhetorically in its new study.
Vacancies in 2010 and 2011 fell by an average of 35 basis points, but this year, they fell only 30 basis points on average. The second quarter brought a 20 basis point drop in vacancies followed by a 10 basis point drop in the third quarter.
"This is the slowest rate of improvement since the recovery began in early 2010," Reis said.
Demand for apartments is still higher than supply, the research firm said. Yet, with demand showing signs of weakness, there could be troubles in the future with so many multifamily projects opening their doors next year.
While the slowing demand is not enough to sound the alarm, Reis is injecting a dose of caution into the marketplace.
"Landlord revenues will still be healthy, with effective rent growth expected to be around 3% over the next few years," the data firm said. "However, it will be wise to temper the most optimistic forecasts for investment returns, even for this superstar property type."
In September, Prudential Mortgage Capital Co. enhanced its multifamily lending platform after estimating that multifamily construction and development would remain a significant trend.