Apartment Rentals Still a 'Landlord's Market' in 2013

The National Association of Realtors predicts that 2013 will continue to be a landlord’s market for both single and multifamily rental housing owners. Vacancy rates for apartment rentals are expected to remain low enough next year to maintain both a landlord's market and increasing rents. According to the association, vacancy rates less than 5% are considered a landlord's market.

For multifamily housing, the National Association of Realtors expects that the vacancy rate of 4% for the fourth quarter of this year will go down slightly to 3.9% by the fourth quarter of 2013. On average, they expect that apartment rent will rise by 4.6% in 2013 after a gain of 4.1% this year.

Lawrence Yun, the association’s chief economist, early last year said, “Vacancy rates are steadily falling. Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest. Housing formation appears to be rising from pent-up demand. The tight apartment market should encourage more apartment construction. Otherwise, rent increases could further accelerate in the near-to-intermediate term.”

For other types of commercial real estate like office, industrial and retail, the association is also expecting to see lower vacancy rates next year. However, multifamily housing in the apartment rental market will standout both because of tight availability and for rent increases that they say far outpace inflation. Average apartment rent should increase by 4.1 percent in 2012 and by another 4.6 percent next year. Multifamily net absorption is likely to be 219,700 units this year and 234,600 in 2013.

Vacancy rates in the office sector are projected to fall from an estimated 16.7 percent in the fourth quarter of this year to 15.7 percent in the fourth quarter of 2013. Office rent is expected to increase 2.0 percent this year and 2.5 percent in 2013. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 21.7 million square feet in 2012 and 49.0 million next year.

For the industrial sector, vacancy rates should decline from 10.1 percent in the fourth quarter of this year to 9.5 percent in the fourth quarter of 2013. Annual industrial rent is forecast to rise by 1.7 percent in 2012 and by 2.2 percent next year. Net absorption of industrial space nationally will probably total 93.4 million square feet this year and 89.6 million in 2013.

For the retail sector, vacancy rates are expected to ease from 10.8 percent in the fourth quarter to 10.6 percent in the fourth quarter of 2013. Average retail rent should increase 0.8 percent this year and 1.4 percent in 2013. Net absorption of retail space is estimated to be 9.1 million square feet this year and 19.8 million in 2013.

According to Yun, “Job creation is the key to increasing demand in the commercial real estate sectors. The economy is expected to grow 2.5 percent next year, and with modest job creation, assuming there is no fiscal cliff, the demand for commercial space will gradually rise. The greatest friction that remains is a tight credit environment, notably for smaller properties."