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Vacancy Rate Stays Lower Than Expected

apartment Vacancy Rate

Digested from “Apartment Vacancy Rate Stays Low, Surprising Researchers” in National Real Estate Investor (12/6/16) by Anderson, Bendix

Industry experts predicted that with apartment supply set to peak this year, the vacancy rates would experience a noticeable increase. But a mix of continued strong demand and construction delays has forestalled a spike in the vacancy rate, though it has been inching up this year.

In the third quarter of 2016, the vacancy rate was 4.4 percent, up from 4.2 percent in the second quarter of 2015, according to Reis data. Reis researchers expect the vacancy rate to hit 4.6 percent by the end of 2016. When broken down by building types, Class A units have a slightly higher vacancy rate than more affordable Class C units.

The vacancy rate is expected to continue to increase in 2017, as new supply surpasses 2016 levels. Next year, 370,000 new apartments are expected to be delivered, compared with 320,000 units projected for 2016 and the 220,000 units that came online in 2015, according to Marcus & Millichap.

Even with the increased supply in 2017, the vacancy rate is expected to stay at or near 5 percent as job growth continues to be a moderating influence.

New construction in 2018 should fall from 2017 levels, as lenders are less bullish about funding new apartment developments.

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