NEW YORK (Reuters) - The vacancy rate for U.S. apartments hit a three-year high in the first quarter and asking rents dropped the most in at least 10 years as the number of excess apartments on the market ballooned, according to real estate research firm Reis Inc.
And the figures are forecast to get even worse as more apartment buildings are expected to open this year, increasing supply, and as the U.S. employment picture gets uglier, Reis said.
Job creation is the No. 1 driver of demand for apartments.
“Given that things are weakening right now, any new buildings that come on will add additional pressure to landlords,” Victor Calanog, Reis director of research, said.
The national apartment vacancy rate rose to 7.2 percent in the first quarter, up 0.60 percentage points from the prior quarter and 1.1 percentage points from a year earlier, according to the report, released on Tuesday.
Since reaching a cyclical low of 5.5 percent in the third quarter of 2008, the U.S. apartment vacancy rate has surged 1.7 percentage points, Reis said.
It was the highest vacancy rate since the first quarter of 2002. That was right before the last downturn bottomed out, but Reis expects the picture to get a lot darker as “we are arguably only at the beginning of the current downturn.”
Behind the rising vacancy rate is a build-up of available apartments. The number of vacant apartments added was 31,878 units in the first quarter. This was the largest amount of excess apartments the sector has seen since the first quarter of 2002 and does not include empty condos for rent.
Asking rents fell by 0.6 percent to $1,046 per month, the largest single-quarter decline since Reis began reporting quarterly performance data in 1999.
Effective rent, which factors in months of free rent, and other concessions and freebies, fell 1.1 percent to a monthly rent of $984.
Some 22,833 units came online in the first quarter of 2009, and Reis expects a total of over 90,000 units to come online through 2009.
Many heads of apartment real estate investment trusts expect that revenue in the best markets could be flat on a year-over-year basis, David Neithercut, chief executive of Equity Residential (EQR.N), said last month in a conference call in which he was joined by Camden Property Trust (CPT.N) CEO Ric Campo, Home Properties HME.N CEO Ed Pettinella, and Mid-America Apartment Communities Inc (MAA.N) CEO Eric Bolton.
Neithercut said landlords were giving generous concessions in order to maintain occupancy rates.
In the New York metropolitan area, the largest U.S. apartment market, the vacancy rate rose 1.1 percentage points to 3.4 percent in the first quarter — the largest single-quarter increase since at least 1999. Effective rent fell to $2,728 a month, down 2.6 percent from the prior quarter.
The decline was exceeded only by the San Francisco area, where the effective rent fell 2.8 percent to $1,775.
Reporting by Ilaina Jonas; Editing by Gary Hill