National vacancies in the Apartment sector rose by 10 basis points to end the period at 4.5%. This is quite in line with our expectations for the year. Asking and effective rents rose by a paltry 1.0% and 0.9%, which was in some sense surprising since the third quarter tends to remain strong, seasonally. However, I’ll take to quoting what I said last quarter, when we wrote that we should, “expect a moderation in rent growth as the market absorbs new supply.” Here’s a sector that’s been the superstar since 2010, and developers have responded to superb rent growth and tight vacancies by bringing more product to market.
We have already begun to record the standard delays that usually come up around this time of year, pushing supply additions to 2018. But 2017 is still on track to deliver over 250,000 units across Reis’s top 82 markets. That’s a number that we haven’t seen at the national level since the late 1980s.
This year, and next year, are going to be banner years for supply growth. While we expect renter demand to continue to remain robust, we are predicting vacancies to rise given the amount of new projects that are coming online. The steep drop off in supply growth in 2019 is something to be hopeful about: a lot of lenders and sources of finance have in fact pulled back on green lighting multifamily construction, a process which began last year. The train has left the station for the projects which have already broken ground – and the next 18 months will really be a time of reckoning for markets like New York, where it is expected that a record number of new properties – over 15,000 units, not counting condos and town-homes – will come online. Vacancies in New York have already spiked to 4.7% in the third quarter – “spike” is relative, and in a market used to 2% to 3% vacancies, ending the year at close to 6% generates a lot of hand wringing for New York City market participants.