National apartment vacancies dropping, San Diego’s are rising
July 8th, 2007 - Category: Apartments, Real EstateThe national and the local apartment vacancy rates, far apart in recent years, are much closer now.
Reis, Inc. (AMEX: WRP) a New York-based research firm, said the nation’s average apartment vacancy was 5.8 percent as of the end of the second quarter, down from 6 percent during the first three months of 2007 –reportedly the highest level in seven quarters.
The national survey covered about 9.3 million apartments in 79 metropolitan markets.
For San Diego County, in its bi-annual survey, MarketPointe Realty Advisors reported in March that San Diego County had about a 4.54 percent vacancy rate.
Although this was the highest level in a decade, the industry considers anything around 5 percent to be an apartment market in equilibrium.
MarketPointe restricts its surveys to complexes with 25 or more units.
Reis counts mainly apartment buildings of 40 units or more. In some states, it counts buildings with at least 15 units.
While the vacancy is still quite low here, 4.54 percent level is still a far cry from September 2006, when it was a mere 1.84 percent by MarketPointe’s accounts.
The wave of condominium conversions that tapered off sharply last year, may have been a factor here.
The San Diego County Apartment Association reported an apartment vacancy of 5.1 percent in its spring survey published last month, up from 3.1 percent in its fall survey and 3.05 percent in the spring of 2006.
Average vacancy rates across all unit types were highest in the City of San Diego (at 5.4 percent), and ranged between 4.5 percent to 4.8 percent in the North County, East County and South Bay regions, according to the SDCAA.
Downtown had the highest vacancy by far, with an 18 percent rate. Some of those apartments, started as apartments, were converted to condominiums, before being converted back to apartments.
The higher vacancies here haven’t stopped rents in San Diego from climbing, although there has been a flattening out in the rate of increase during the past year. MarketPointe put the average rental at $1,261 in March 2007, a $50 increase from March 2006.
Reis reported that San Francisco saw the highest growth in average asking rents, at 2.7 percent, followed by San Jose at 2.5 percent.
Palm Beach, Fla., was the worst market for rent growth last quarter, with average asking rents falling 0.4 percent, Reis said.
Miami and Tampa also were among the five markets with the smallest rent growth, at 0.2 percent or less.
As for construction, Reis reported about 60,000 new apartment units are scheduled for completion from July to December nationally, almost twice the 32,386 units that came onto the market in the first half of the year.
Vacancy rates are likely to rise with all that building Reis chief economist Sam Chandan said.
“There are a fair number slated to be completed in the second half of the year,” Chandan said in a telephone interview. “While completions slowed in the second quarter, construction activity remains healthy.”
By contrast, while multifamily construction was still in high gear in San Diego 18 months ago, it has slowed down since.
The Construction Industry Research Board said only 138 multifamily permits worth $18 million were pulled in the entire county in May. There are often more than that number in a single project.
Nationally, the Reis report said demand for residential rental properties is growing as the housing market cools, spurring acquisitions of apartment owners by other operators and private funds flush with cash, Reis noted.
The second quarter saw at least two big acquisitions of apartment landlords. America First Apartment Investors, which owns 32 multifamily buildings in 13 states, agreed in June to be bought by Sentinel Real Estate Corp. for $279.5 million.
Archstone-Smith Trust (NYSE: ASNPRD), the second-largest U.S. apartment real estate investment trust, in May accepted a $13.5 billion buyout by Lehman Brothers Holdings Inc. , the third-largest apartment REIT during the just-completed quarter.
As Wall Street and private funds seek new acquisition targets, apartments continue to be in high demand at least at the national level.
In San Diego there has been a bit of a respite while investors wait for prices to stabilize, however.
Burnham Real Estate’s second quarter statistics are still in the process of being compiled, but in the first quarter of 2007, the company tallied 137 apartment transactions involving 2,854 units, down 11 percent and 7.4 percent, respectively, from the 154 sales totaling 3,081 units during the like period in 2006.
