As a result of positive economic trends, slower development, and uncertainty in the single-family housing market, apartment vacancy rates fell 110 basis points from 10.3 percent at the close of 2006 to 9.2 percent as of the first quarter of 2007. Owners are pushing rents higher in response, but they have kept growth modest to maintain improving vacancy rates.
After recording negative rent growth in the first quarter of 2006, asking rents increased 1.2 percent in the first quarter of 2007 to $1,221 per month. This is roughly $700 below the mortgage payment on the area’s median-priced home, creating an affordability gap of nearly 60 percent.
LOCAL INTEL At a more micro-market level, vacancy rates remain elevated around the city of Providence, as new inventory delivered last year pushed rates to nearly 17 percent. Increased demand for rental housing in the area, however, resulted in a 180 basis point improvement in vacancy for the first quarter, pushing the rate down to 15 percent.
In the northern and southern sub-markets of Rhode Island, vacancy has remained low as a result of strong demand coupled with limited construction over the past several years. The north and south Rhode Island sub-markets’ vacancy rates have fallen to 5.6 percent and 4 percent, respectively.
While these outer submarkets have traditionally reported lower vacancy rates than central Providence, the Providence submarket has experienced the largest improvement in vacancy in the metro in the first quarter, shedding twice as much as the outer submarkets. Asking rents in the Providence submarket have also advanced at a higher rate than outlying areas of the state.
LOOKING AHEAD A lack of developable land coupled with continued population growth will buttress the Providence apartment market for the foreseeable future. Construction will remain subdued as developers sit on the sidelines or opt for condominium projects. While solid economic trends exist, income levels continue to climb at a slower pace than home prices, positively augmenting the metro’s renter pool. Vacancy will continue to improve for the foreseeable future as demand increases, although owners are expected to approach rent increases cautiously.
Steve Witten is a senior director in the New Haven office of Marcus & Millichap’s National Multi Housing Group. Tom Hershey, a senior analyst with the firm, contributed to this article.
FAST FACTS Considering Providence? Here’s what you need to know:
- Population: 1,648,512
- Occupancy: 92.4%
- Median Age: 38.3 years
- Median Household Income: $48,259
- Average Rent: $1,227
Unemployment: 5.6% NOTABLE: Each summer, the city hosts WaterFire, an environmental art exhibition in which roughly 100 bonfires blaze just above the three rivers in downtown Providence. The Industrial Revolution started in Rhode Island with the 1790 development and construction of Samuel Slater’s water-powered cotton mill. Providence is home to America’s first enclosed shopping mall, the Arcade, built in 1820.