U.S. Apartment Rents Fall, Vacancies at 4-Year High, Reis Says

By Hui-yong Yu

Jan. 7 (Bloomberg) -- U.S. apartment rents fell in the fourth quarter from the third as the national vacancy rate climbed to a four-year high of 6.6 percent, Reis Inc. said.

Job losses and lower wages are cutting into the pool of potential renters in their twenties and thirties, defying the expectation that apartments would benefit from the housing slump, the New York-based research firm said.

Asking rents fell 0.1 percent from the previous quarter, to $1,052 on average, their first quarter-to-quarter decline in almost six years. They rose 2.4 percent from a year earlier. Effective rents, what tenants actually paid, fell to an average $996 last quarter, down 0.4 percent from the prior quarter and up 2.2 percent from a year earlier.

“The real sign of weakness spreading to the apartment sector is the fact that fourth-quarter 2008 asking and effective rent growth have both turned negative,” said Victor Calanog, director of research at Reis. It was the first time this happened since the first quarter of 2002, he said.

Landlords may be offering concessions such as free rent to avoid higher vacancies, which would account for the bigger decline in actual rents than asking rents, Calanog said.

The decline can be partly explained by the fact that demand for apartments tends to fall in the first and fourth quarters as most people move in the other quarters, he said.

Vacancy Rate

The vacancy rate rose to 6.6 percent in the fourth quarter from 6.2 percent in the third quarter and 5.7 percent at the end of 2007, Reis said. The fourth quarter matched the vacancy rate in 2005’s first quarter and was the highest since the fourth quarter of 2004, when it was 6.7 percent, according to Reis.

Vacancies increased in 66 of the 79 cities measured by Reis and effective rents fell in 54 markets.

The net change in occupied space, a measure of leasing known as absorption, shrank by 13,283 units.

Completions proceeded at a fairly steady pace throughout 2008, with 23,472 units coming to market in the fourth quarter, slightly less than the quarterly average of 23,955 units last year.

The U.S. economy, pushed into recession in December 2007, probably lost more jobs in 2008 than in any year since the end of World War II, a government report may show this week. Payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to the median estimate of economists surveyed by Bloomberg News ahead of Labor Department figures due Jan. 9.

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net