The US multifamily investors are being hit by rapidly rising vacancy rates and declining rents, according to real estate research firm Reis.
The apartment rental sector saw the national vacancy rate rise to 7.2 percent in the first quarter of 2009, up 0.6 percent over the past three months alone and an increase of 1.2 percent over the past year.
In its first quarter Apartment, Office, and Retail Sector Trends report, Reis said the last time vacancy levels had hit 7.2 percent was in 2004. However, the New York-based firm warned: “We are arguably only at the beginning of the current downturn.”
Rents, though, are also declining as excess inventory hits the market. Some 22,833 units came online in the first quarter of 2009, and Reis expects a total of over 90,000 units to come online through 2009, helping to further push down actual or effective rents and a landlord's asking rent.
In the first three months of the year, effective rents – which factor in free rent and other concessions offered to tenants – fell 1.1 percent against a decline in asking rents of 0.6 percent. Reis said landlords were offering more concessions in an attempt to prevent occupancy levels dropping further.
Research director Victor Calanog said the fall in asking rent growth was the largest decline ever seen since Reis began reporting in 1999.
Private equity real estate firms have seen multifamily as a recession-resistant sector, with many firms actively purchasing rental apartments over the past six months. In December, Henderson Global Investors bought a 204-unit multifamily housing complex on the outskirts of Boston for $48.5 million, its third deal of 2008 and the ninth property to be acquired through its $205m value-added multifamily fund, CASA IV. Other active purchasers of multifamily properties include BPG, Kennedy Wilson, Carmel and LRG Capital.
In its report, Reis also warned that the US office sector had seen a “marked acceleration” in vacancy rates. During the first three months of 2009, 24.9 million of square feet of surplus office space hit the market – the worst quarterly performance since the terrorist attacks of 9/11 and the destruction of the World Trade Centre.