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Rental-Apartment Market Picks Up the Pace
| | Monday, October 10, 2005 @ 09:44 AM EDT
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Contributed by: Ken Lyons
Ken Lyons Properties
Read more archived articles about Economy - Good
From The Wall Street Journal Online
The nation's rental-apartment market improved for the third consecutive quarter, leading some experts to declare that a recovery is taking hold.
Vacancies dropped significantly and rents rose in the nation's top 70 markets, according to new quarterly statistics from REIS Inc., a New York-based real-estate research firm. Houston made one of the most dramatic improvements in the third quarter, as renters displaced by Hurricane Katrina grabbed apartments and shrunk the city's vacancy rate almost overnight.
The national vacancy
rate fell to 5.9% compared with 6.4% in the second quarter and 6.6% a year earlier. Effective rents, meaning the rents minus concessions, rose by 1.2%. That is up from a 0.6% rise in the second quarter. Concessions -- which include tenant lures such as one month of free rent -- also dropped in some markets. Fewer concessions indicate a market is moving in favor of landlords and away from renters. "It's a good picture," says Lloyd Lynford, chief executive officer of REIS.
The summer is traditionally a strong time in the apartment market and researchers say the market could slow during the fall and winter months. Nonetheless, the improvements in the past three quarters are signs that the market has emerged from its roughly four-year slump.
The market was helped by two major factors. Job growth is driving up demand and the conversion of apartments to condominiums is curtailing supply. But, Mr. Lynford says, "I don't want to overstate it." Historically low home mortgage rates continue to siphon would-be renters away from apartments and job growth tends to be limited to certain markets.
Barring a grave downturn in the economy, researchers say the positive trends in the apartment sector are likely to continue. "I am pretty comfortable saying that the apartment recovery has taken hold," says Michael Cohen, a senior real-estate economist at Property & Portfolio Research in Boston.
It has been a good year for apartments in the stock market as well. Apartment real-estate investment trusts are up nearly 21% in the past 12 months, slightly ahead of the average REIT return and well ahead of the overall stock market, according to SNL Financial.
Hurricane Katrina blew new life into Houston's sluggish market. O'Connor & Associates Research & Consulting Services, a Houston firm, estimates that the city's monthly absorption -- the net change in occupied apartments -- was 10 times its normal amount last month. The city's apartment vacancy rate was 13.7% before the hurricane, according to Property & Portfolio Research. The firm estimates the rate will improve to at least 10.7% in the third quarter, largely because of the hurricane.
Camden Property Trust, a publicly traded REIT that owns or co-owns several thousand apartment units in Houston, saw its occupancy improve and its stock price rise after Katrina. Camden Chief Executive Officer Ric Campo says the hurricane will help Houston trim its excess apartment supply. "Without the Hurricane, the recovery was pretty muted relative to other markets," he says. "But today, the recovery is going to be accelerated."
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