Raising the Rent
Occupancy goes up as completions keep heading down.
Healthy occupancy rates plus a plunge in completions create a scenario in which rent seems likely to rise, predicts multifamily brokerage and research firm Marcus & Millichap. On a year-over-year basis, occupancy has improved 100 basis points despite the fact that occupancy nudged down to 94.2 percent during the typical seasonal slowdown in the first quarter.
Meanwhile, developers continue to focus on condo construction and conversions. Apartment completions during the first quarter tumbled a whopping 50 percent from the quarterly average over the past two years; the index stands barely above half the level it stood at for the fourth quarter of ’05. Conversion activity has reduced inventory considerably: In the past 12 months, 115,000 rental units have been sold for conversion.
Thus, it’s no surprise that the revenue index recorded strong growth in the first quarter–indeed, the best growth since the market bottom of late 2002, increasing to nearly 95 percent of 2000 levels.
Over the past year, effective rents have increased 7.4 percent, of which a 5.5 percent gain was recorded in the first quarter of 2006 alone–the largest quarterly in-crease since 2000. With the tightening of occupancy rates expected to continue, effective rent growth will stay at healthy levels and likely surpass the 2000 level by the end of the year, Marcus & Millichap says.