US apartment vacancies hit 23-year high of 7.8%

SEATTLE: US apartment vacancies rose to 7.8% in 3%, 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% from a year earlier, the New York-based property research firm said in a report on Oct 6. Asking rents, or what landlords sought, fell 1.8% from a year earlier.

Job losses and falling wages are shrinking the pool of potential tenants. The US unemployment rate rose to 9.8% in August, the highest since 1983, the Labor Department said on 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% in 2Q and 6.2% in 3Q2008, Reis said. Compared with 2Q, asking rents fell 0.5% and effective rents fell 0.3%.

New York’s vacancy rate fell to 2.9% in 3Q from 3% in 2Q, as the end of summer brought an influx of tenants signing leases, Reis said. Effective rents dropped 0.9% from the prior quarter and were down 6.8% 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% decline recorded in 2002.”

New Haven, Connecticut, replaced New York as the city with the lowest vacancy rate, at 2.5%, 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% including dividends during the past year, compared with a gain of 1% for the Standard & Poor’s 500 Index. The apartment REIT index has 13 members, including Equity Residential and AvalonBay Communities Inc. – Bloomberg LP