U.S. Apartment Vacancies Hit 23-Year High of 7.8%

By Hui-yong Yu

Oct. 6 (Bloomberg) -- U.S. apartment vacancies rose to 7.8 percent in the third quarter, the highest since 1986, as rising unemployment reduced rental demand, Reis Inc. said.

Actual rents paid by tenants, known as effective rents, declined 2.7 percent from a year earlier, the New York-based property research firm said in a report today. Asking rents, or what landlords sought, fell 1.8 percent from a year earlier.

Job losses and falling wages are shrinking the pool of potential tenants. The U.S. unemployment rate rose to 9.8 percent in September, the highest since 1983, the Labor Department said Oct. 2.

Vacancies “continued to rise despite what has traditionally been a strong leasing period for apartment properties,” Victor Calanog, director of research at Reis, said in a statement. “Given the inherent seasonality of rental and lease-up patterns we expect fourth-quarter figures to be even weaker, implying that we may break historic vacancy levels by year-end 2009.”

The apartment vacancy rate was 7.7 percent in the second quarter and 6.2 percent in 2008’s third quarter, Reis said. Compared with the second quarter, asking rents fell 0.5 percent and effective rents fell 0.3 percent.

New York’s Rate Falls

New York’s vacancy rate fell to 2.9 percent in the third quarter from 3 percent in the second, as the end of summer brought an influx of tenants signing leases, Reis said. Effective rents dropped 0.9 percent from the prior quarter and were down 6.8 percent from a year earlier.

“With New York being relatively more dependent on the still-embattled financial services sector, it may take a few more quarters before we see rents bottoming out” there, Calanog said. “We are on track for 2009 to register as the worst year in rent drops on record, far exceeding the historic 3.8 percent decline recorded in 2002.”

Manhattan apartment rents fell as much as 8.9 percent in the third quarter from a year earlier, broker Citi-Habitats Inc. said yesterday in a report. Average rents declined for all apartment sizes as landlords offered concessions to tenants, the company said.

New Haven, Connecticut, replaced New York as the city with the lowest vacancy rate, at 2.5 percent, partly due to the start of the academic year, said Reis. Yale University is located in New Haven.

The Bloomberg REIT Apartment Index fell 17 percent including dividends during the past year, compared with a gain of 1 percent for the Standard & Poor’s 500 Index. The apartment REIT index has 13 members, including Equity Residential and AvalonBay Communities Inc.