Apartment rents in the U.S. climbed the most in almost five years in the second quarter as shrinking vacancies allowed landlords to charge more, Reis Inc. said.
Effective rents, or what tenants paid after landlord giveaways are included, rose to an average $1,041 a month from $1,028 in the first quarter and $1,006 a year earlier, the New York-based real estate research firm said in a report today. The 1.3 percent gain from the previous three months was the biggest since the third quarter of 2007, before the recession began.
Demand for apartments has jumped as insufficient income or bad credit deter many Americans from purchasing homes, while others prefer the flexibility of leasing. The national apartment vacancy rate fell to 4.7 percent in the second quarter, the lowest since the end of 2001. The rate was 4.9 percent in the first quarter and 5.9 percent a year earlier.
“For most markets, once vacancies tighten below 5 percent, effective rents tend to spike,” Ryan Severino, senior economist at Reis, said in the report. “It appears that rents are beginning to accelerate.”
Increasing construction may slow the recovery as rising rents encourage a wave of new apartment development, Severino said. While the second quarter’s new supply of 9,452 units was “quite weak by historical standards,” Reis expects about 70,000 units to open for leasing this year, about twice the rate of supply growth in 2011, according to the report.
Next year, 150,000 to 200,000 new units will be completed in the 79 metropolitan markets Reis tracks. In certain submarkets, the surge in supply may hamper landlords’ ability to push price increases, the company said.
New York had the lowest apartment vacancy rate in the second quarter, at 2.2 percent, Reis said. It also had the largest increase in effective rents from the previous three months, up 1.7 percent to an average $2,935 a month.
Six of the top 10 markets for effective-rent increases were cities with a strong base of technology employment, including San Francisco and Seattle, Reis said.
All 79 markets had year-over-year effective-rent growth of more than 2 percent, according to the report.
“Even the poorest-performing markets are faring relatively well,” Severino said.