U.S. apartment rents rose 3.2% in the first quarter as occupancies climbed and newly constructed projects commanded higher leasing costs, softening the impact of an increasing supply.

Effective rents, or what tenants paid after any landlord breaks such as a free month, averaged $1,089 a month, up from $1,055 a year earlier, Reis Inc. said in a report. The vacancy rate fell to 4 percent, down from 4.4 percent and the lowest since the third quarter of 2001, when it was 3.9 percent.

Rentals remain popular four years into a U.S. apartment recovery fueled by the foreclosure crisis, tighter mortgage standards and many people’s preference for leasing. A wave of new construction in response to the demand sparked concern among landlords that rent gains would slow. Builders completed 131,450 new units in 2013, up 66 percent from the previous year and more than triple the 42,491 apartments added in 2011, Reis said.

“Demand for apartments is seemingly insatiable,” Ryan Severino, senior economist at the New York-based research firm, said in the report. “Still-low vacancy, an improving economy and labor market, and lots of newly completed Class A properties coming online with rents higher than the market average will all conspire to push asking and effective rents up by roughly 3.3 percent this year.”

Seventy-one of the 79 largest U.S. markets had effective-rent growth in the quarter, “indicating the pervasiveness of the recovery in the apartment market,” in contrast to other major property types such as offices, where the rebound has been “far more limited,” Severino said.


Technology- and energy-driven markets have had the strongest rent gains, according to Reis. San Jose, California; San Francisco; and Seattle led the U.S. in effective-rent growth in the past 12 months, with increases of 6.5 percent, 6.3 percent and 5.9 percent, respectively, the firm said.

San Jose is among California cities poised to surpass the college-student hub of New Haven, Connecticut, as the area with the nation’s lowest apartment vacancies, Reis said. New Haven, home to Yale University, had a 2.3 percent vacancy rate in the first quarter.

“San Jose, San Diego, and Riverside/San Bernardino all boast vacancy rates marginally higher than New Haven but are experiencing greater vacancy compression,” Severino said. “In another quarter or two, it is highly probable that one, if not all, will overtake New Haven as the tightest market in the country.”

New York

New York continues to slip in vacancy rankings as record rents damp demand, Reis said. The rate in the first quarter was 2.8 percent, tied for seventh-lowest. Effective rents averaged $3,115 a month — 43 percent higher than San Francisco, the second-costliest market, according to Reis.

U.S. apartment owners had net occupancy gains of 41,570 units in the quarter, up from 39,437 a year earlier, Reis said. A total of 25,135 new apartments were completed in the three months through March, up from 17,573 units in the first quarter of 2013.

*The above article was originally published by Bloomberg.com and can be found HERE.

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