Unexpected Elevation
You don’t have to dig deep into the 2010 numbers to see the improvement. Part of that is, of course, the morbid market the industry faced in 2008 and 2009. Consider the loss of 57,000 renter households last year, according to Boston-based Property & Portfolio Research (PPR), an independent provider of commercial real estate research. That’s the worst single-year loss since 1982.
But surprisingly, the apartment industry picked up all of those losses—and some—in the first six months of 2010, according to PPR. In that time, the apartment industry has seen positive absorption of 58,000 units.
M/PF’s numbers are just as giddy. The firm says the top 64 markets absorbed about 215,000 units in the first half, which is still negative on an annual basis. “That has gone up pretty meaningfully though, specifically during the second quarter, with an increase of 1.2 percent,” Willett says. “Those are solid numbers.”
Solid numbers, indeed. Consider the year’s occupancy and vacancy numbers to date. From the first quarter to second quarter of 2010, New York-based Reis, which provides trends and forecasts for commercial real estate, saw vacancy rates dip slightly from 8 percent to 7.8 percent. M/PF Research shows mid-year 2010 occupancy at 93.4 percent—an improvement of 1.6 percentage points from the end of 2009.
Many analysts also saw increases in both asking and effective rents in the first and second quarters. In the first quarter, Reis saw asking rents rise 0.1 percent and effective rents move up 0.3 percent. While these aren’t necessarily large jumps, it was the first time rents entered positive territory since the third quarter of 2008. And things got even better in the second quarter of 2010, with asking rents up 0.4 percent and effective rents up 0.6 percent from the previous quarter.
“The good news with effective rents growing larger than asking rents is that it gives me a pretty good indication that if concessions haven’t halted, landlords are decreasing the concessions or pulling back a bit,” says Ryan Severino, an economist with Reis, who notes that concessions (in terms of the difference between asking and effective rents) in the second quarter of 2010 ran about $58 per unit, nearing the $53 per unit that the industry saw when rents were last positive in 2008.
But not everyone is ready to say that 2010 has shattered expectations across the board. “With rents, we’re pretty much in line with expectations,” says Gleb Nechayev, vice president and senior economist for Boston-based CBRE Econometric Advisors, a commercial real estate market research firm. “On the demand side, as far as gains in occupancy, it’s certainly been stronger.”
