Rents and Vacancy: Where Does Your City Rank?

August 26, 2009--The multi-family housing industry continues to suffer from low occupancies and rents. Vacancies are up across the country. Rent is down over most major market areas. In the midst of plummeting home sales, why would occupancy and rents continue to decline? While this market phenomenon is good news for renters, those in the apartment industry are finding it a bit hard to swallow.

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Metro Areas Hit the Hardest

Accorrding to a survey recently published by ALN Apartment Data, Dallas, one of the largest apartment markets in the country, felt the impact, with average rents significantly dropping from $780 to $770 per month, and vacancy rates falling 3.1% below the critical 90% occupancy mark that many apartment complexes need to remain profitable.

Arizona was also hit hard, with both Phoenix and Tucson experiencing occupancy rates down more than 3% and rents down almost 5%. Even Atlanta and Las Vegas fell over 3% in occupancy rates, and were slammed with slashed rental rates.

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~Data provided by ALN Apartment Data

Paradox of Increased Foreclosures and Falling Apartment Occupancy

Why do rents and occupancy continue to fall while foreclosures are on the rise, and new and existing home sales are down significantly YTD?  Some economists explain that homeowners being forced from their homes through the foreclosure process are choosing to lease single-family instead of moving into an apartment. The effect is mild stabilization of single-family rentals and no effect to demand on apartment units.

The Job Market and Relocation

The lack of jobs and high unemployment rate are playing major factors in demand for apartment units. College graduates are choosing to move back home with mom and dad to save on expenses because there are no entry level jobs. Most large businesses have also frozen hiring in this recession. Shifting focus from expansion to internal efficiency, many companies have made aggressive cuts to budgets and projects, while others have completely eliminated or postponed them. The net effect is less demand for apartments. 

Signs of Improvement

The apartment industry will only show signs of improvement through a significant worsening in the economy or an economic recovery that propels expansion and hiring. Apartment occupancies and rents show the most stability in the peaks and troughs of economic cycles. 

If things get worse, consumers will be forced from their homes at greater rates and be forced to choose the most inexpensive housing options which remains to be apartment housing. If things improve, increased hiring and the consumer relocation that comes with it will increase demand on apartment units.